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EXHIBIT 2.1
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ASSET ACQUISITION AGREEMENT
BETWEEN:
SOLO ENERGY CORPORATION
A DELAWARE CORPORATION
AND
ELEKTRYON
A NEVADA CORPORATION
DATED AS OF APRIL 16, 2001
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TABLE OF CONTENTS
PAGE
1. Definitions ................................................................... 1
1.1 Definitions ............................................................. 1
(a) "Accounts Receivable" ............................................. 1
(b) "Act" ............................................................. 1
(c) "Affiliate" ....................................................... 1
(d) "Cash" ............................................................ 1
(e) "Closing" ......................................................... 1
(f) "Closing Date" .................................................... 2
(g) "Commissioner" .................................................... 2
(h) "ERISA" ........................................................... 2
(i) "Fairness Approval" ............................................... 2
(j) "Fairness Hearing" ................................................ 2
(k) "GAAP" ............................................................ 2
(l) "Governmental Authorizations" ..................................... 2
(m) "Governmental Entity" ............................................. 2
(n) "Inventories" ..................................................... 2
(o) "Investors' Rights Agreement" ..................................... 2
(p) "Knowledge of Transferor" ......................................... 2
(q) "Lien" ............................................................ 2
(r) "Material Adverse Effect" ......................................... 2
(s) "Permitted Property Exceptions" ................................... 3
(t) "Person" .......................................................... 3
(u) "Restated Certificate" ............................................ 3
(v) "Superior Proposal" ............................................... 3
(w) "Taxes" ........................................................... 3
(x) "Third Party Acquisition" ......................................... 3
(y) "Trade Payables" .................................................. 3
2. Acquisition and Transfer ...................................................... 3
2.1 Transfer of Assets ...................................................... 3
2.2 Excluded Assets ......................................................... 5
2.3 Assumption of Liabilities ............................................... 5
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TABLE OF CONTENTS
(CONTINUED)
2.4 Excluded Liabilities .................................................... 6
2.5 Acquisition Consideration ............................................... 7
2.6 Closing Balance Sheet ................................................... 9
2.7 Earn Out ................................................................ 9
3. Closing ....................................................................... 11
3.1 Closing ................................................................. 11
3.2 Actions at the Closing .................................................. 11
(a) Assignment of Assets; Assignment and Assumption Agreement ......... 11
(b) Acquisition Consideration ......................................... 12
(c) Title ............................................................. 12
(d) Third Party Consents and Assignments .............................. 12
(e) Transferor Documents .............................................. 12
(f) Acquiror Documents ................................................ 12
(g) Post-Closing Actions .............................................. 12
4. Representations and Warranties of Transferor .................................. 12
4.1 Organization, Standing and Power ........................................ 12
4.2 Subsidiaries ............................................................ 13
4.3 Authority; Dissenter's Rights ........................................... 13
4.4 Execution and Binding Effect ............................................ 13
4.5 Consents and Approvals of Governmental Entities ......................... 13
4.6 No Violation ............................................................ 13
4.7 Consents ................................................................ 14
4.8 Transferor Financial Statements ......................................... 14
4.9 No Undisclosed Liabilities .............................................. 14
4.10 Absence of Certain Changes .............................................. 15
4.11 Assets Generally ........................................................ 16
4.12 Intellectual Property ................................................... 17
4.13 Supply Agreements ....................................................... 18
4.14 Related-Party Transactions .............................................. 19
4.15 Warranties and Indemnities .............................................. 19
4.16 Real Property ........................................................... 19
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TABLE OF CONTENTS
(CONTINUED)
4.17 Inventories ............................................................. 20
4.18 Accounts Receivable ..................................................... 20
4.19 Licenses and Permits .................................................... 20
4.20 Employees ............................................................... 21
4.21 Employee Benefit and Compensation Plans ................................. 22
4.22 Taxes ................................................................... 22
4.23 Compliance with Law ..................................................... 23
4.24 Environmental Matters ................................................... 23
4.25 Material Contracts ...................................................... 25
4.26 Products ................................................................ 27
4.27 Product Liability ....................................................... 27
4.28 Litigation; Other Claims ................................................ 27
4.29 Defaults ................................................................ 27
4.30 Schedules ............................................................... 28
4.31 Manufacturing and Marketing Rights ...................................... 28
4.32 Full Disclosure ......................................................... 28
4.33 Brokers and Finders ..................................................... 28
4.34 Fair Consideration; No Fraudulent Conveyance ............................ 28
4.35 Insurance ............................................................... 28
4.36 ECOM Report ............................................................. 28
4.37 Field Test Units ........................................................ 29
4.38 Purchase Entirely for Own Account ....................................... 29
4.39 Disclosure of Information ............................................... 29
4.40 Investment Experience ................................................... 29
4.41 Restricted Securities ................................................... 29
4.42 Further Limitations on Disposition ...................................... 29
4.43 Legends ................................................................. 30
5. Representations and Warranties of Acquiror .................................... 30
5.1 Organization, Good Standing and Qualification ........................... 30
5.2 Capitalization and Voting Rights ........................................ 31
5.3 Subsidiaries ............................................................ 32
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TABLE OF CONTENTS
(CONTINUED)
5.4 Authority ............................................................... 32
5.5 Execution and Binding Effect ............................................ 32
5.6 Valid Issuance of Common Stock .......................................... 33
5.7 Governmental Consents ................................................... 33
5.8 No Undisclosed Liabilities; Solvency .................................... 33
5.9 No Violation ............................................................ 33
5.10 Consents ................................................................ 34
5.11 Offering ................................................................ 34
5.12 Litigation .............................................................. 34
5.13 Proprietary Information Agreements ...................................... 34
5.14 Patents and Trademarks .................................................. 35
5.15 Agreements; Action ...................................................... 36
5.16 Related-Party Transactions .............................................. 37
5.17 Licenses and Permits .................................................... 38
5.18 Environmental Matters ................................................... 38
5.19 Manufacturing and Marketing Rights ...................................... 39
5.20 Full Disclosure ......................................................... 39
5.21 Registration Rights ..................................................... 40
5.22 Corporate Documents ..................................................... 40
5.23 Title to Property and Assets ............................................ 40
5.24 Acquiror Financial Statements ........................................... 40
5.25 Absence of Certain Changes .............................................. 40
5.26 Employee Benefit Plans .................................................. 42
5.27 Taxes ................................................................... 42
5.28 Insurance ............................................................... 43
5.29 Minute Books ............................................................ 43
5.30 Employees ............................................................... 43
5.31 Brokers ................................................................. 44
5.32 Significant Customers and Suppliers ..................................... 44
5.33 Field Test Units ........................................................ 44
6. Covenants of Transferor ....................................................... 44
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TABLE OF CONTENTS
(CONTINUED)
6.1 Access to Information ................................................... 44
6.2 Reasonable Efforts ...................................................... 45
6.3 Transferor's Conduct of the Business Prior to Closing ................... 45
6.4 No Other Bids ........................................................... 47
6.5 Tax Returns ............................................................. 48
6.6 Post-Closing Access to Information ...................................... 48
6.7 Post-Closing Cooperation ................................................ 48
6.8 Post-Closing Actions .................................................... 48
6.9 Permits ................................................................. 50
6.10 Bulk Sales Law .......................................................... 50
6.11 Taxes ................................................................... 50
6.12 Customer Due Diligence .................................................. 50
6.13 Intellectual Property ................................................... 50
6.14 Auditors' Consents ...................................................... 50
6.15 Non-Disturbance and Attornment .......................................... 50
7. Covenants of Acquiror ......................................................... 51
7.1 Access to Information ................................................... 51
7.2 Reasonable Efforts ...................................................... 51
7.3 Acquiror's Conduct of its Business Prior to Closing ..................... 51
7.4 Tax Returns ............................................................. 52
7.5 Non-Interference ........................................................ 52
7.6 Reorganization Covenants ................................................ 52
7.7 CAT LP License .......................................................... 53
8. Other Agreements .............................................................. 53
8.1 Third Party Consents .................................................... 53
8.2 Certain Notifications ................................................... 53
8.3 Confidentiality ......................................................... 53
8.4 Public Announcements .................................................... 53
8.5 Transition Agreement .................................................... 54
8.6 Right of First Offer to Transferor ...................................... 54
8.7 Fairness Hearing ........................................................ 55
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TABLE OF CONTENTS
(CONTINUED)
9. Employee Matters .............................................................. 55
9.1 Transferred Employees ................................................... 55
9.2 Compensation and Benefits of Transferred Employees ...................... 56
9.3 Other Employees of the Business ......................................... 57
9.4 No Right to Continued Employment or Benefits ............................ 57
9.5 No Solicitation or Hire by Transferor ................................... 57
10. Conditions to Acquiror's Obligations .......................................... 57
10.1 Representations and Warranties True; Performance; Certificate ........... 57
10.2 Consents ................................................................ 58
10.3 No Proceedings or Litigation ............................................ 58
10.4 Documents ............................................................... 58
10.5 Title Insurance ......................................................... 58
10.6 Non-Disturbance and Attornment .......................................... 58
10.7 Governmental Filings .................................................... 59
10.8 No Material Adverse Change .............................................. 59
10.9 Termination of Benefit Plans ............................................ 59
10.10 Shareholder Approval .................................................... 59
10.11 Escrow Agreement ........................................................ 59
10.12 Audited Financials ...................................................... 59
10.13 Provisions for Liabilities .............................................. 59
10.14 Customer Diligence ...................................................... 59
10.15 Intellectual Property ................................................... 59
10.16 Solvency Opinion ........................................................ 60
10.17 Fairness Approval ....................................................... 60
10.18 Releases ................................................................ 60
11. Conditions to Transferor's Obligations ........................................ 60
11.1 Representations and Warranties True; Performance ........................ 60
11.2 No Proceeding or Litigation ............................................. 60
11.3 Documents ............................................................... 60
11.4 Governmental Filings .................................................... 61
11.5 No Material Adverse Change .............................................. 61
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TABLE OF CONTENTS
(CONTINUED)
11.6 Shareholder Approval .................................................... 61
11.7 Escrow Agreement ........................................................ 61
11.8 Board of Directors ...................................................... 61
11.9 Proprietary Information Agreements ...................................... 61
11.10 Restated Certified, Bylaws and Resolutions .............................. 61
11.11 Grant of Options ........................................................ 62
11.12 Solvency Opinion ........................................................ 62
12. Escrow and Indemnification .................................................... 62
12.1 Survival of Representations and Warranties .............................. 62
12.2 Indemnification by Transferor ........................................... 62
12.3 Indemnification by Acquiror ............................................. 63
12.4 Escrow Period ........................................................... 63
12.5 Method of Asserting Claims .............................................. 64
12.6 Exclusive Remedy ........................................................ 65
13. Termination ................................................................... 65
13.1 Termination of Agreement ................................................ 65
13.2 Procedure and Effect of Termination ..................................... 66
14. Miscellaneous ................................................................. 66
14.1 Amendments and Waivers .................................................. 66
14.2 Successors and Assigns .................................................. 66
14.3 Choice of Law ........................................................... 66
14.4 Consent to Jurisdiction ................................................. 66
14.5 Waiver of Jury Trial .................................................... 66
14.6 Counterparts ............................................................ 67
14.7 Titles and Subtitles .................................................... 67
14.8 Notices ................................................................. 67
14.9 Severability ............................................................ 68
14.10 Entire Agreement ........................................................ 68
14.11 Advice of Legal Counsel ................................................. 68
14.12 Fees and Expenses ....................................................... 68
14.13 Parties in Interest ..................................................... 69
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TABLE OF CONTENTS
(CONTINUED)
PAGE
EXHIBIT A-1 through A-2 .................................................. 1
EXHIBIT B ................................................................ 1
EXHIBITS C-1 through C-5 ................................................. 1
EXHIBIT D ................................................................ 1
EXHIBIT E ................................................................ 1
EXHIBIT F ................................................................ 1
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ASSET ACQUISITION AGREEMENT
This Asset Acquisition Agreement (the "Agreement") is entered into as
of April 16, 2001, by and between Solo Energy Corporation, a Delaware
corporation ("Acquiror"), and Elektryon, a Nevada corporation ("Transferor").
RECITALS
Acquiror is in the business of the development and future provision of
distributed generation energy. Transferor conducts a business that develops,
assembles, and is preparing to market and sell the POWR/MASTR(TM), a device for
on-site delivery of distributed generation energy (the "Business"). Acquiror
desires to acquire from Transferor, and Transferor desires to transfer to
Acquiror, substantially all of the assets of the Business on the terms and
subject to the conditions set forth in this Agreement (the "Acquisition").
The parties intend the Acquisition to qualify as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code").
As an inducement to Acquiror to enter into this Agreement, certain
employees of Transferor have entered into Offer Letters ("Offer Letters"),
attached hereto as Exhibits A-1 through A-2.
AGREEMENT
In consideration of the mutual agreements, representations, warranties
and covenants set forth below, Acquiror and Transferor agree as follows:
1. DEFINITIONS.
1.1 DEFINITIONS. As used in this Agreement, the following terms shall
have the following meanings:
(a) "ACCOUNTS RECEIVABLE" means all accounts receivable, notes
receivable and other receivables arising out of or relating to the Business each
calculated in the identical manner (using the same components, accounting
practices and methodology, consistently applied) used by Transferor to prepare
the list attached hereto as Schedule 4.18.
(b) "ACT" means the Securities Act of 1933, as amended.
(c) "AFFILIATE" means with respect to any Person, a Person
directly or indirectly controlling or controlled by or under common control with
such Person.
(d) "CASH" means cash and cash equivalents (including
marketable securities and short term investments) calculated in accordance with
GAAP applied on a basis consistent with the Transferor Financial Statements.
(e) "CLOSING" means the consummation of the transactions
contemplated hereby.
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(f) "CLOSING DATE" means the date of the Closing.
(g) "COMMISSIONER" means the Commissioner of the California
Department of Corporations.
(h) "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
(i) "FAIRNESS APPROVAL" has the meaning set forth in Section
8.7.
(j) "FAIRNESS HEARING" has the meaning set forth in Section
8.7.
(k) "GAAP" means generally accepted accounting principles of
the United States as set forth by the Financial Accounting Standards Board.
(l) "GOVERNMENTAL AUTHORIZATIONS" means the permits,
authorizations, consents or approvals of any Governmental Entity which are a
condition to the lawful consummation of the transactions contemplated hereby
listed on Schedule 1.1(l) to this Agreement.
(m) "GOVERNMENTAL ENTITY" means any court, or any federal,
state, municipal or other governmental authority, department, commission, board,
agency or other instrumentality (domestic or foreign).
(n) "INVENTORIES" means all raw materials, work-in-process,
finished goods, supplies and other inventories of the Business each calculated
in the identical manner (using the same components, accounting practices and
methodology, consistently applied) used by Transferor to prepare the list
attached hereto as Schedule 4.17.
(o) "INVESTORS' RIGHTS AGREEMENT" means the Amended and
Restated Investors' Rights Agreement dated as of February 20, 2001 among
shareholders of Acquiror.
(p) "KNOWLEDGE OF TRANSFEROR" means the actual knowledge,
after due inquiry of Michael Holmstrom, Joanne Firstenberg, Bryan Mewhort, Mark
Thurbur and Paul Servello.
(q) "LIEN" means any mortgage, pledge, lien, security
interest, option, covenant, condition, restriction, encumbrance, charge or other
third-party claim of any kind other than Permitted Property Exceptions and such
other encumbrances and liens that arise in the ordinary course of business and
do not materially impair Acquiror's ownership or use of such property or assets.
(r) "MATERIAL ADVERSE EFFECT" with respect to a Person means
any event, change or effect that is materially adverse to the condition
(financial or otherwise), properties, assets, liabilities, business, operations,
results of operations, or prospects of such Person and its Affiliates, taken as
a whole.
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(s) "PERMITTED PROPERTY EXCEPTIONS" means exception numbers 1,
2, 3, 4, 5, 9, 10 and 11 as shown in Schedule B of that certain Commitment for
Title Insurance issued by Ticor Title Insurance Company dated March 9, 2001.
(t) "PERSON" means an individual, corporation, partnership,
association, trust, government or political subdivision or agent or
instrumentality thereof, or other entity or organization.
(u) "RESTATED CERTIFICATE" means the amended and restated
Certificate of Incorporation of Acquiror dated February 20, 2001, as amended.
(v) "SUPERIOR PROPOSAL" has the meaning set forth in Section
6.4(c).
(w) "TAXES" means all taxes, however denominated, including
any interest, penalties or other additions to tax that may become payable in
respect thereof, (i) imposed on Transferor by any federal, territorial, state,
local or foreign government or any agency or political subdivision of any such
government, for which Acquiror could become liable as successor to or transferee
of the Business or the Acquired Assets or which could become a charge against or
lien on any of the Acquired Assets, which taxes shall include, without limiting
the generality of the foregoing, all sales and use taxes, ad valorem taxes,
excise taxes, business license taxes, occupation taxes, real and personal
property taxes, stamp taxes, environmental taxes, real property gains taxes,
transfer taxes, payroll and employee withholding taxes, unemployment insurance
contributions, social security taxes, and other governmental charges, and other
obligations of the same or of a similar nature to any of the foregoing, which
are required to be paid, withheld or collected, or (ii) any liability for
amounts referred to in (i) as a result of any obligations to indemnify another
person.
(x) "THIRD PARTY ACQUISITION" has the meaning set forth in
Section 6.4(c).
(y) "TRADE PAYABLES" means the liabilities of the Transferor
arising in connection with the Transferor's purchase of goods and services in
the ordinary course of the Business each calculated in the identical manner
(using the same components, accounting practices and methodology, consistently
applied) used by Transferor to prepare the list attached hereto as Schedule
2.3(b).
2. ACQUISITION AND TRANSFER.
2.1 TRANSFER OF ASSETS. Subject to the terms and conditions of this
Agreement, Transferor shall assign, grant, transfer, and deliver (or cause to be
assigned, granted, transferred and delivered) to Acquiror, or to any
wholly-owned subsidiary of Acquiror, and Acquiror shall acquire and accept from
Transferor as of the Closing Date, free and clear of all Liens, all of the
Transferor's rights, title and interest in and to all of the assets, properties
and business other than the Excluded Assets owned, held or used in the conduct
of the Business by Transferor as the same shall exist on the Closing Date (the
"Acquired Assets"), including, without limitation:
(a) all real property and leases of and other interests in
real property, in each case together with all buildings, fixtures and
improvements thereon, including, without limitation, the items listed on
Schedule 2.1(a);
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(b) all tangible personal property and leases of and other
interests in tangible personal property used in connection with the Business,
including, without limitation, the items listed on Schedule 2.1(b);
(c) all Inventories;
(d) all rights under the contracts, agreements, leases and
other interests in real and personal property, licenses, commitments, sales and
purchase orders and other instruments, listed on Schedule 2.1(d) (collectively
the "Contracts");
(e) all Cash related to any Inventories of Transferor that are
sold prior to Closing, to the extent the proceeds from such sale have not been
applied to Trade Payables;
(f) all accounts receivable, notes receivable and other
receivables, other than notes receivable and settlement agreements listed on
Schedule 2.2 hereto;
(g) all prepaid expenses relating to the operation of the
Business including, but not limited to Taxes, leases and rentals;
(h) all of Transferor's rights, claims, credits, causes of
action or rights of set-off against third parties relating to the Acquired
Assets, including, without limitation, unliquidated rights under warranties;
(i) all copyrights, copyright registrations, proprietary
processes, trade secrets, license rights, specifications, technical manuals and
data, drawings, inventions, designs, patents, patent applications, trade names,
trademarks, service marks, product information and data, know-how and
development work-in-progress, customer lists, software, business and marketing
plans and other intellectual or intangible property embodied in or pertaining to
the Business, whether pending, applied for or issued, whether filed in the
United States or in other countries, including without limitation the items
listed in Schedule 2.1(i), together with all associated goodwill;
(j) all things authored, discovered, developed, made,
perfected, improved, designed, engineered, acquired, produced, conceived or
first reduced to practice by Transferor or any of its employees or agents that
are embodied in, derived from or relate to the Business, in any stage of
development, including, without limitation, modifications, enhancements,
designs, concepts, techniques, methods, ideas, flow charts, coding sheets, notes
and all other information relating to the Business;
(k) any and all design and code documentation, methodologies,
processes, trade secrets, copyrights, design information, product information,
technology, formulae, routines, engineering specifications, technical manuals
and data, drawings, inventions, know-how, techniques, engineering work papers,
and notes, development work-in-process, and other proprietary information and
materials of any kind relating to, used in, or derived from the Acquired Assets
(collectively with subsections (i) and (j), the "Transferor Intellectual
Property");
(l) all permits, authorizations, consents and approvals of any
Governmental Entity affecting or relating in any way to the Business, including
without limitation, the items listed on Schedule 2.1(l) (the "Permits");
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(m) all books, records files and papers, whether in hard copy
or electronic format, used in the Business, including without limitation,
engineering information, sales and promotional literature, manuals and data,
sales and purchase correspondence, lists of present, former and prospective
suppliers or customers, personnel and employment records, and any information
relating to Taxes imposed on the Business or Acquired Assets;
(n) all computer software programs, data and associated
licenses used in connection with the Business; and
(o) all goodwill associated with the Business or the Acquired
Assets, together with the right to represent to third parties that Acquiror is
the successor to the Business.
2.2 EXCLUDED ASSETS. Acquiror agrees that notwithstanding any provision
of Section 2.1 the following assets of Transferor (the "Excluded Assets") shall
be excluded from the Acquired Assets:
(a) all of the Cash of Transferor as of the Closing Date,
except to the extent Transferor sells any Inventories prior to Closing, in which
case the proceeds from such sale, net of any reductions in Trade Payables, shall
be included in the Acquired Assets to be transferred to Acquiror pursuant to
this Agreement;
(b) the notes receivable and settlement agreements listed on
Schedule 2.2(b) hereto relating to the settlement of certain claims of
Transferor against certain individuals and any other assets of Transferor set
forth on Schedule 2.2(b); and
(c) all the contracts, agreements, leases and other interests
in real and personal property, licenses, commitments, sales and purchase orders
and other instruments of Transferor other than the Contracts set forth on
Schedule 2.1(d) hereto.
2.3 ASSUMPTION OF LIABILITIES. Subject to the terms and conditions of
this Agreement, Acquiror agrees, effective as of the Closing Date, to assume the
following liabilities (the "Assumed Liabilities").
(a) the liabilities set forth on Schedule 2.3(a) to the extent
set forth thereon;
(b) the Trade Payables of Transferor as of the Closing Date,
each calculated in the identical manner (using the same components, accounting
practices and methodology, consistently applied) used by Transferor to prepare
the list of Trade Payables as of April 5, 2001 and attached hereto as Schedule
2.3(b);
(c) the liabilities and obligations of Transferor arising
under the Contracts assumed by Acquiror, other than the liabilities attributable
to any failure by Transferor to comply with the terms thereof;
(d) liabilities for taxes set forth in the proviso to Section
2.4(b) hereof as of the Closing Date;
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(e) any liability of Transferor not Known to Transferor
arising out of the violation of or failure to comply with any Environmental Laws
(as hereafter defined) occurring before the Closing applicable to any aspect of
the Business.
2.4 EXCLUDED LIABILITIES. Except for those liabilities expressly
assumed by Acquiror or any Affiliate designated by Acquiror pursuant to Section
2.3, Acquiror shall not assume and shall not be liable for, and Transferor and
its direct or indirect subsidiaries shall retain and remain solely liable for
and obligated to discharge, all of the debts, contracts, agreements,
commitments, obligations and other liabilities of any nature whatsoever of
Transferor and its direct and indirect subsidiaries, whether known or unknown,
accrued or not accrued, fixed or contingent, including without limitation, the
following:
(a) Any liability for breaches by Transferor or any of its
respective direct or indirect subsidiaries on or prior to the Closing Date of
any contract or any other instrument, contract or purchase order or any
liability for payments or amounts due under any Contract not assumed by Acquiror
hereunder;
(b) Any liability or obligation for Taxes attributable to or
imposed upon Transferor or any of its direct or indirect subsidiaries, or
attributable to or imposed upon the Acquired Assets for any period (or portion
thereof) through the Closing Date, including, without limitation, any Taxes
attributable to or arising from the transactions contemplated by this Agreement;
provided, however, that notwithstanding anything to the contrary herein,
Acquiror shall assume liabilities relating to and shall bear the cost of the
specific accrued Taxes set forth on Schedule 2.4(b) hereto as of the Closing
Date calculated in the identical manner (using the same components, accounting
practices and methodology, consistently applied) used by Transferor to prepare
the list attached hereto as Schedule 2.4(b);
(c) Any liability or obligation for or in respect of any loan,
other indebtedness for money borrowed, or account payable of Transferor or any
of its direct or indirect subsidiaries, including any such liabilities owed to
Affiliates of Transferor, except that Acquiror shall assume any such liabilities
relating to the Trade Payables;
(d) Any liability or obligation arising as a result of any
legal or equitable action or judicial or administrative proceeding initiated at
any time, to the extent relating to any action or omission on or prior to the
Closing Date by or on behalf of Transferor or any of its direct or indirect
subsidiaries, including, without limitation, any liability for infringement of
intellectual property rights, breach of product warranty, injury or death caused
by products, or violations of federal or state securities or other laws;
(e) Any liability or obligation arising on or prior to the
Closing Date out of any Employee Benefit Plan (other than any liability or
obligation specifically assumed by Acquiror pursuant to Section 9 hereof);
(f) Any liability or obligation for making payments of any
kind (including as a result of the sale of Acquired Assets or as a result of the
termination of employment by Transferor of employees, or other claims arising
out of the terms and conditions of employment
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with Transferor, or for vacation or severance pay or otherwise) to employees of
Transferor or in respect of payroll taxes for employees of Transferor;
(g) Any liability of Transferor incurred in connection with
the making or performance of this Agreement and the transactions contemplated
hereby, including, without limitation, all legal, accounting, investment
banking, broker or finder's fees;
(h) Any liability of Transferor Known to Transferor arising
out of the violation of or failure to comply with any Environmental Laws (as
hereinafter defined) occurring before the Closing applicable to any aspect of
the Business;
(i) The costs associated with all contracts and agreements not
assumed by Acquiror;
(j) Any liability of Transferor arising out of or in
connection with any claim or action by or against Phil C. Meisenger, Gene E.
Stinson or Edwin Wheeler;
(k) Any liability of Transferor set forth on Schedule 2.4
hereto; and
(l) Any liability of Transferor arising out of any claim or
action by any shareholder of Transferor, including any claim for rights of
recission or fraud with respect to shares of Transferor held by such
shareholders or any claim under federal or state securities laws (collectively,
with subsections (a) - (k), the "Excluded Liabilities").
2.5 ACQUISITION CONSIDERATION. Subject to the performance by Transferor
of all of its obligations under this Agreement (including delivering all
documents required to be delivered) at the Closing, in consideration of the
acquisition of the Acquired Assets under Section 2.1, Acquiror agrees to:
(a) pay to Transferor an aggregate of $5,000,000, subject to
the adjustment set forth in Section 2.5(a)(i), in immediately available funds
and 51,878,788 shares of Acquiror's Common Stock (the "Acquisition
Consideration"), plus Transferor shall have the right to obtain the "Earn-Out
Consideration" in accordance with the terms of Section 2.7 below, as follows:
(i) Cash Escrow. $1.0 million of the Acquisition
Consideration shall be placed into an interest bearing escrow account (the
"Escrow Account") on the Closing Date with the Escrow Agent (the "Escrow Agent")
pursuant to an escrow agreement in the form of Exhibit B (the "Escrow
Agreement"). The Escrow Agreement shall provide that the cash deposited into the
Escrow Account, plus interest accrued thereon (the "Cash Escrow"), shall be
distributed within 10 days following the final approval of the Transferor's
Closing Balance Sheet pursuant to Section 2.6. The Cash Escrow shall be
distributed as follows:
(A) Inventories and Accounts Receivable. In the
event that the aggregate amount of Inventories and Accounts Receivable set forth
on the Closing Balance Sheet equals or exceeds the Transferor's aggregate amount
of Inventories as of March 28, 2001 and Accounts Receivable as of April 12, 2001
and set forth on Schedules 4.17 and 4.18 (in each case using the same
components, accounting practices and methodology, consistently applied), then
the Cash Escrow, net of any amounts payable to Acquiror pursuant to Section
2.5(a)(i)(B) below,
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shall be distributed in full to the Transferor within 10 days following the
final approval of the Closing Balance Sheet pursuant to Section 2.6. In the
event that the aggregate amount of Inventories and Accounts Receivable set forth
on the Closing Balance Sheet is less than the aggregate amount of Inventories as
of March 28, 2001 and Accounts Receivable as of April 12, 2001, then a portion
of the Cash Escrow shall be distributed to Acquiror in an amount equal to the
net amount of such shortfall, and the balance of the Cash Escrow, net of any
amounts payable to Acquiror pursuant to Section 2.5(a)(i)(B) below, shall be
payable to Transferor within 10 days following the final approval of the Closing
Balance Sheet pursuant to Section 2.6.
(B) Trade Payables. If the aggregate amount of
Transferor's unpaid Trade Payables set forth on the Closing Balance Sheet
exceeds $3,000,000, then a portion of Cash Escrow shall be distributed to
Acquiror in an amount equal to such excess, and the balance of the Cash Escrow
shall be payable to Transferor, net of amounts payable to Acquiror pursuant to
Section 2.5(a)(i)(A) above, within 10 days following the final approval of the
Closing Balance Sheet pursuant to Section 2.6. In the event the aggregate amount
of Transferor's Trade Payables at Closing is less than $3,000,000, then Acquiror
shall pay to Transferor within 10 days following the final approval of the
Closing Balance Sheet pursuant to Section 2.6 an amount equal to such
difference.
(ii) Stock Escrow. 10,909,091 shares of the Acquisition
Consideration shall be placed into the Escrow Account on the Closing Date with
the Escrow Agent pursuant to the Escrow Agreement to secure the obligations of
Transferor under Section 12.2. To the extent that an Acquiror Indemnified Person
suffers Damages with respect to which the Acquiror Indemnified Person has an
entitlement to indemnification under Section 12.2, then the Acquiror Indemnified
Person shall first obtain recovery from the escrow account established pursuant
to this Section 2.5(a). Any stock held in the Escrow Account on the date one
year following the Closing Date (the "Stock Escrow") shall be distributed to
Transferor or its designee promptly thereafter in accordance with the terms of
the Escrow Agreement; provided, however, that such stock shall not be
distributed to the extent that as of the date one year following the Closing
Date, an Acquiror Indemnified Person has claimed an entitlement to
indemnification under Section 12.2 and such claim remains unsatisfied. To the
extent any of the Stock Escrow held by the Escrow Agent is to be returned to
Acquiror on account of any claim by Acquiror pursuant to Section 12 below, the
number of shares of Acquisition Consideration required to be returned shall be
equal to the dollar amount of such claim divided by the fair market value of the
shares. For this purpose, the "fair market value" of the Common Stock held in
the Escrow Account shall have a value equal to the fair market value of such
stock as determined in good faith by Acquiror's Board of Directors, taking into
account the most recent valuation of Acquiror established in an arms length
transaction. Transferor (or, if applicable, the Liquidating Trust) shall at all
times retain the right to direct the vote of all of the shares of Common Stock
held by the Escrow Agent. The costs associated with establishing and maintaining
the Escrow Account pursuant to this Section 2.5 shall be borne equally by
Acquiror and Transferor.
(b) issue stock options exercisable for Common Stock of
Acquiror to Michael Holmstrom and Joanne Firstenberg in the amounts and at the
exercise prices set forth in Schedule 2.5(b) hereto; provided, that their
currently outstanding stock options exercisable for shares of Transferor are
terminated concurrently.
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(c) assume the Assumed Liabilities.
2.6 CLOSING BALANCE SHEET. Within 10 days following the Closing,
Transferor shall deliver to Acquiror a balance sheet of Transferor as of the
Closing Date (the "Closing Balance Sheet") which includes, without limitation,
the Inventories, the Accounts Receivable and the Trade Payables of Acquiror.
Within 15 days following receipt by Acquiror of such Closing Balance Sheet,
Acquiror may reject the Closing Balance Sheet by written notice to Transferor
specifying in reasonable detail the bases for such rejection ("Notice of
Rejection"). In such event, Acquiror and Transferor shall make reasonable
efforts to resolve such dispute during the ten-day period following Transferor's
receipt of the Notice of Rejection. In the absence of a timely Notice of
Rejection, the Closing Balance Sheet reported by Transferor shall be deemed
approved and conclusive and binding on the parties. If no resolution is achieved
by the end of such ten-day period, the matter shall be submitted to a neutral
arbiter mutually selected by Transferor and Acquiror (the "Arbitrator"). In the
event the parties are unable to mutually select an Arbitrator within 10 days,
then the Arbitrator shall be PriceWaterhouseCoopers. The Arbitrator shall
resolve such dispute within a 30-day period commencing upon the appointment of
the Arbitrator. The Closing Balance Sheet, as so adjusted, shall be deemed
approved and conclusive and binding upon the parties. The costs associated with
the preparation of the Closing Balance Sheet and with the activities of the
Arbitrator shall be shared equally by the parties.
2.7 EARN OUT.
(a) Definitions. For purposes of this Section 2.7, the
following terms shall have the following meanings:
(i) "Buyer" means one or more of the entities set forth
on Schedule 2.7 hereto or an entity which is a non-Affiliate of Transferor which
will use the Units in a commercial facility for baseload or peaking power and
not solely for backup power.
(ii) "Earn-Out Period" means the period beginning on the
Closing Date and ending on the later of December 31, 2001 or six months
following the initial day of operation of the last Unit sold by Transferor
pursuant to a Purchase Commitment in furtherance of the achievement of a
Performance Goal hereunder.
(iii) "First Performance Goal" means that within 90 days
of the date hereof, Transferor or Acquiror, as appropriate, has obtained from a
Buyer (A) a Purchase Commitment for the delivery of at least 50 Units for
delivery by December 31, 2001 and (B) a Letter of Intent for the delivery of an
additional 100 Units in 2001 or 2002.
(iv) "Letter of Intent" means a non-binding letter of
intent with a Buyer.
(v) "Purchase Commitment" means a noncancellable
purchase order with a Buyer for a firm delivery and a fixed price of not less
than $55,000 F.O.B., not including installation and service, with (i) a parts
and labor warranty not to exceed the shorter of 5000 hours or one year and (ii)
a purchase price payable in cash on 30-day terms.
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(vi) "Second Performance Goal" means that within 90 days
of the date hereof, Transferor or Acquiror, as appropriate, has obtained from a
Buyer or Buyers (A) a Purchase Commitment for the delivery of at least 100 Units
for delivery by December 31, 2001 and (B) a Letter of Intent for the delivery of
an additional 200 Units in 2001 or 2002, in each case including any Units
counted toward satisfaction of the First Performance Goal.
(vii) "Units" means the C-3 units of Transferor (or a
later model), not the C-1 units of Transferor unless such units have been
modified to meet C-3 unit specifications set forth on Schedule 2.7(a)(vii).
(b) Calculation of Earn-Out Consideration. The Earn-Out
Consideration shall be equal to (i) 18,181,818 additional shares of Common Stock
of Acquiror if Transferor achieves the First Performance Goal or, alternatively,
(ii) 36,363,636 additional shares of Common Stock of Acquiror if Transferor
achieves the Second Performance Goal. For purposes of determining whether
Transferor has achieved either the First Performance Goal or the Second
Performance Goal, as applicable, the Units delivered pursuant to a Purchase
Commitment must be delivered and accepted by the Buyer with no rights to return
and be operable on site, all by December 31, 2001 and the Units must be operable
for six months without more than 5% subject to any warranty claims. Further,
none of the Units may be sold to distributors or other intermediaries for
inventory. In addition, any contractual agreements for installation of Units
must be for no less than an average of $17,000 per Unit and any contractual
agreement for service of the Units must be for Units in California and must be
for no less than 1.6 cents per kilowatt hour. Finally, in order to be a valid
Letter of Intent under this Section 2.7, such Letter of Intent must provide that
the Units to be delivered pursuant to the related Letter of Intent will
similarly be deployed in the field prior to December 31, 2002.
(c) Determination of Earn-Out Consideration. After the end of
the Earn-Out Period, but in any event prior to sixty (60) days following the
expiration of such period, Acquiror will prepare and deliver to Transferor, a
preliminary report setting forth Transferor's performance during the Earn-Out
Period with respect to the First Performance Goal and the Second Performance
Goal (the "Acquiror's Earn-Out Proposal"). Within thirty (30) days of the
delivery of the Acquiror's Earn-Out Proposal, Transferor will provide Acquiror
with notice of any specific objections with respect to any particular items
contained in Acquiror's Earn-Out Proposal. Upon any such objection, the parties
shall work together in good faith to determine the appropriate amounts to be
included in the above-calculated numbers. The final agreed upon calculations of
the First Performance Goal or the Second Performance Goal shall be determinative
for purposes hereof. Any disputes regarding the foregoing (but not regarding any
other provision of this Section 2.7), to the extent not resolved by negotiations
among the parties, shall be determined by an accounting firm mutually acceptable
to the parties. The determination made by the accounting firm so selected shall
be conclusive and binding upon the parties. The fees and expenses of such
accounting firm shall be shared equally by Acquiror and Transferor.
(d) Payment of Earn-Out Consideration. Upon the determination
of the Earn-Out Consideration, Acquiror will promptly issue to Transferor the
Earn-Out Consideration, net of any amounts required to be paid by Transferor to
Acquiror pursuant to any claims for indemnification pursuant to Section 12
below. The Earn Out Consideration shall be payable to Transferor only if
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Transferor meets all of the conditions set forth in this Section 2.7. In the
event Transferor meets only a portion of the specified conditions, no portion of
the Earn Out Consideration shall be paid by Acquiror.
3. CLOSING.
3.1 CLOSING. Subject to the terms and conditions of this Agreement, the
Closing shall take place on such date, as soon as practicable after all
conditions precedent in Sections 10 and 11 have been satisfied or waived, as the
parties may agree, but in any case, no later than June 30, 2001 (the "Closing
Date").
3.2 ACTIONS AT THE CLOSING. At the Closing, Transferor shall deliver
the Acquired Assets to Acquiror, Acquiror shall deliver the Acquisition
Consideration to Transferor and the Escrow Agent as specified in Section 2.5
above, and Acquiror and Transferor shall take such actions and execute and
deliver such agreements, assignments, and other instruments and documents as
necessary or appropriate to effect the transactions contemplated by this
Agreement in accordance with its terms, including without limitation the
following:
(a) ASSIGNMENT OF ASSETS; ASSIGNMENT AND ASSUMPTION AGREEMENT.
Transferor shall deliver to Acquiror a general Assignment of Assets
substantially in the form attached as Exhibit C-1, an Agreement of Assumption of
Liabilities substantially in the form attached hereto as Exhibit C-2, a Special
Warranty Deed substantially in the form attached as Exhibit C-3 with respect to
each fee real property included in the Acquired Assets, an Assignment and
Assumption of Lessee's Interest in Lease substantially in the form attached
hereto at Exhibit C-4 with respect to each of Transferor's real property
leasehold interests included in the Acquired Assets, and an Assignment and
Assumption Agreement, with respect to each item of Transferor Intellectual
Property included in the Acquired Assets, substantially in the form attached as
Exhibit C-5 (collectively, the "Transfer Documents"), in each case duly executed
by Transferor, and in the aggregate assigning to Acquiror all of Transferor's
right, title and interest in and to the Acquired Assets. Acquiror may designate
one or more of its wholly-owned Affiliates as the recipient of certain of the
Acquired Assets, and as the party to assume certain of the Assumed Liabilities,
in which case Transferor shall transfer such Acquired Assets and Assumed
Liabilities to Acquiror or the Affiliate(s) designated by Acquiror pursuant to
such Transfer Documents.
(b) ACQUISITION CONSIDERATION. Acquiror shall deliver the
Acquisition Consideration to Transferor and the Escrow Agent pursuant to the
terms of Section 2.5, above.
(c) TITLE. Transferor shall provide reasonable evidence of
valid title to such of the Acquired Assets, free and clear of all Liens (other
than as to the real property interests, the Permitted Property Exceptions), as
Acquiror may reasonably request in writing prior to the Closing, in form and
substance reasonably satisfactory to Acquiror, to the extent such evidence is in
the possession of the Transferor.
(d) THIRD PARTY CONSENTS AND ASSIGNMENTS. Transferor shall
deliver to Acquiror any assignments, and any required consents to assignment,
that it has obtained in respect of the Contracts, duly executed by parties
having the authority to so assign or consent to
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assign, in form and substance as Acquiror shall reasonably request, as well as a
written confirmation from such third parties that the Contracts are in good
standing.
(e) TRANSFEROR DOCUMENTS. At the Closing, Transferor shall
deliver to Acquiror any and all documents required to satisfy the conditions set
forth in Section 10 of this Agreement and any other closing documents reasonably
requested by Acquiror.
(f) ACQUIROR DOCUMENTS. At the Closing, Acquiror shall deliver
to Transferor any and all documents required to satisfy the conditions set forth
in Section 11 of this Agreement and any other closing documents reasonably
requested by Transferor.
(g) POST-CLOSING ACTIONS. Subsequent to the Closing Date,
Transferor shall, and shall cause any Affiliate of Transferor to, from time to
time, execute and deliver, upon the request of Acquiror, all such other and
further materials and documents and instruments of conveyance, transfer or
assignment as may reasonably be requested by Acquiror to effect, record or
verify the transfer to and vesting in Acquiror of Transferor's and any of
Transferor's Affiliates' right, title and interest in and to the Acquired
Assets, free and clear of all Liens in accordance with the terms of this
Agreement.
4. REPRESENTATIONS AND WARRANTIES OF TRANSFEROR.
Each representation and warranty set forth below is qualified by any
exception or disclosure set forth in the Transferor Disclosure Schedule attached
hereto, which exceptions specifically reference the Section(s) to be qualified.
Transferor represents and warrants to Acquiror as follows:
4.1 ORGANIZATION, STANDING AND POWER. Transferor is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization. Transferor has the requisite corporate power and
authority and all necessary permits, authorizations, consents, and approvals of
all Governmental Entities to own, lease and operate its properties and to carry
on the Business as now being conducted and as proposed to be conducted, except
where the failure to have such would not have a Material Adverse Effect on the
Business. Transferor is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure to be so qualified and in
good standing would have a Material Adverse Effect on the Business. Transferor
has made available to Acquiror true and complete copies of the organization and
governance documents of Transferor, as currently in effect.
4.2 SUBSIDIARIES. Transferor does not presently own or control,
directly or indirectly, any interest in any other corporation, association or
other business entity. Transferor is not a participant in any joint venture,
partnership or similar arrangement.
4.3 AUTHORITY; DISSENTER'S RIGHTS. The execution and delivery of this
Agreement (and all other agreements and instruments contemplated under this
Agreement) by Transferor, the performance by Transferor of its obligations
hereunder and thereunder, and the consummation by Transferor of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
action by the Board of Directors of Transferor, and no other act or proceeding
on the part of or on behalf of Transferor or its shareholders, other than the
consent of the shareholders to this Agreement and the transactions contemplated
hereby, is necessary to approve the execution
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and delivery of this Agreement and such other agreements and instruments, the
performance by Transferor of its obligations hereunder and thereunder and the
consummation of the transactions contemplated hereby and thereby. The signatory
officers of Transferor have the power and authority to execute and deliver this
Agreement and all of the other agreements and instruments to be executed and
delivered by Transferor pursuant hereto, to consummate the transactions hereby
and thereby contemplated and to take all other actions required to be taken by
Transferor pursuant to the provisions hereof and thereof. In accordance with
Nevada law, the shareholders of Transferor are not entitled to dissent from any
action taken by Transferor in connection with the transactions contemplated
hereunder.
4.4 EXECUTION AND BINDING EFFECT. This Agreement has been duly and
validly executed and delivered by Transferor and constitutes, and the other
agreements and instruments to be executed and delivered by Transferor pursuant
hereto, upon their execution and delivery by Transferor, will constitute
(assuming, in each case, the due and valid authorization, execution and delivery
thereof by Acquiror), legal, valid and binding agreements of Transferor,
enforceable against Transferor in accordance with their respective terms.
4.5 CONSENTS AND APPROVALS OF GOVERNMENTAL ENTITIES . Other than the
Governmental Authorizations there is no requirement applicable to Transferor to
make any filing, declaration or registration with, or to obtain any permit,
authorization, consent or approval of, any Governmental Entity as a condition to
the lawful consummation by Transferor of the transactions contemplated by this
Agreement and the other agreements and instruments to be executed and delivered
by Transferor pursuant hereto or the consummation by Transferor of the
transactions contemplated herein or therein.
4.6 NO VIOLATION. Neither the execution, delivery and performance of
this Agreement and all of the other agreements and instruments to be executed
and delivered pursuant hereto, nor the consummation of the transactions
contemplated hereby or thereby, will, with or without the passage of time or the
delivery of notice or both, (a) conflict with, violate or result in any breach
of the terms, conditions or provisions of the Articles of Incorporation or
Bylaws of Transferor, (b) to the Knowledge of Transferor, conflict with or
result in a violation or breach of, or constitute a default or require consent
of any Person (or give rise to any right of termination, cancellation or
acceleration) under, any of the terms, conditions or provisions of any contract,
notice, bond, mortgage, indenture, license, franchise, permit, agreement, lease
or other instrument or obligation to which Transferor is a party or by which
Transferor or any of the Acquired Assets may be bound, (c) violate any statute,
ordinance or law or any rule, regulation, order, writ, injunction or decree of
any Governmental Entity applicable to Transferor or by which any properties or
assets of Transferor may be bound, except where such violation would not have a
Material Adverse Effect on the Business or (d) to the Knowledge of Transferor,
result in any cancellation of, or obligation to repay, any grant, loan or other
financial assistance received by Transferor from any Governmental Entity. No
"bulk sales" legislation applies to the transactions contemplated by this
Agreement.
4.7 CONSENTS. To the Knowledge of Transferor, Schedule 4.7 sets forth
each agreement, contract or other instrument binding upon Transferor requiring a
consent as a result of the execution, delivery and performance of this Agreement
or the consummation of the transactions contemplated hereby (each a "Required
Consent").
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4.8 TRANSFEROR FINANCIAL STATEMENTS. Transferor has delivered to
Acquiror an unaudited balance sheet for Transferor at December 31, 2000 (the
"December 31, 2000 Balance Sheet"), a copy of which is set forth in the
Transferor Disclosure Schedule. The monetary amounts for the accounts included
in the December 31, 2000 Balance Sheet were prepared in accordance with GAAP.
The December 31, 2000 Balance Sheet accurately and correctly discloses the
amounts of the Acquired Assets as of December 31, 2000. Transferor has delivered
to Acquiror copies of its unaudited statements of income for Transferor for the
fiscal years ended December 31, 2000, December 31, 1999, and December 31, 1998
(together with the December 31, 2000 Balance Sheet, the "Transferor Financial
Statements"). To the Knowledge of Transferor, the Transferor Financial
Statements have been prepared consistently for all periods presented, and
revenues presented on the Transferor Financial Statements have been recognized
in accordance with GAAP, consistently applied, except that the Transferor
Financial Statements may not contain all footnotes required by GAAP; provided
that the failure to include footnotes does not result in the omission of any
material information. To the Knowledge of Transferor, the Transferor Financial
Statements present fairly the financial condition, operating results and cash
flows of Transferor as of the dates and during the periods indicated therein,
subject to normal year-end adjustments, which will not be material in amount or
significance.
4.9 NO UNDISCLOSED LIABILITIES. To the Knowledge of Transferor,
Transferor does not have any liability, indebtedness, obligation, expense,
claim, deficiency, guaranty or endorsement of any type, in excess of $75,000
individually or in the aggregate, whether accrued, absolute, contingent,
matured, unmatured or other (whether or not required by GAAP) to be reflected in
the Transferor Financial Statements which (i) has not been reflected in the
December 31, 2000 Balance Sheet, or (ii) has not arisen in the ordinary course
of the Transferor's business since December 31, 2000.
4.10 ABSENCE OF CERTAIN CHANGES. To the Knowledge of Transferor, since
December 31, 2000, Transferor:
(a) has not created, incurred or assumed (i) any borrowings
under capital leases, or (ii) any obligation which in any material way affect
the Business, the Acquired Assets or Acquiror's ability to conduct the Business
in substantially the same manner and condition as conducted by Transferor on the
date of this Agreement;
(b) has not materially changed in any manner the compensation
of, or agreed to provide additional benefits to, or entered into any employment
agreement with, any Employee (as hereinafter defined);
(c) has maintained insurance coverage in amounts adequate to
cover the reasonably anticipated risks of the business conducted with the
Acquired Assets;
(d) has not acquired or agreed to acquire by merging or
consolidating with, or by purchasing any assets or equity securities of, or by
any other manner, any business or any corporation, partnership, association or
other business organization or division thereof, or otherwise acquire or agree
to acquire any assets which are material, individually or in the aggregate, to
the Business;
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(e) has not sold, disposed of or encumbered any of the
Acquired Assets or licensed any Acquired Assets to any Person except for the
sale of Inventories in the normal course of business consistent with past
practice;
(f) has not engaged in any special promotion, which promotes
the sale of Inventories with highly discounted terms;
(g) has not entered into any agreements or commitments
providing for payments in excess of $50,000 relating to the business conducted
with the Acquired Assets, except on commercially reasonable terms in the
ordinary course of business;
(h) has complied in all material respects with all laws and
regulations applicable to the Business;
(i) has not entered into any agreement with any third party
for the distribution of any of the Acquired Assets;
(j) has not changed or announced any change to the products or
services sold by the Business;
(k) has not violated, amended or otherwise changed adversely
in any way the terms of any of the Contracts;
(l) has not commenced a lawsuit related to or involving the
Acquired Assets other than (i) for the routine collection of bills or (ii) for a
breach of this Agreement;
(m) has not assigned, sold or otherwise conveyed to any third
party, any of its accounts receivable prior to the Closing Date; or
(n) made any agreement to do any of the foregoing.
4.11 ASSETS GENERALLY.
(a) To the Knowledge of Transferor, the Acquired Assets
include all properties, tangible and intangible, and only such properties,
currently used by Transferor in operating the Business and necessary for
Acquiror to operate the Business after the Closing Date in a manner
substantially equivalent to the manner in which Transferor has operated the
Business prior to and through the Closing Date. To the Knowledge of Transferor,
other than the Required Consents and the Governmental Approvals, no licenses or
other consents from, or payments to, any other Person are or will be necessary
for Acquiror to operate the Business and use the Acquired Assets in the manner
in which Transferor has operated the same.
(b) To the Knowledge of Transferor, Transferor holds good and
marketable title, license to or leasehold interest in all of the Acquired Assets
and has the complete and unrestricted power and the unqualified right to
transfer, assign and deliver the Acquired Assets to Acquiror. To the Knowledge
of Transferor, upon consummation of the transactions contemplated by this
Agreement, Acquiror will acquire good and marketable title, license or leasehold
interest to the Acquired Assets free and clear of any Liens and there exists no
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restriction on the use or transfer of the Acquired Assets, except as may be
assumed hereunder by Acquiror as an Assumed Liability. To the Knowledge of
Transferor, no Person other than Transferor has any right or interest in the
Acquired Assets, including the right to grant interests in the Acquired Assets
to third parties, except for Acquired Assets licensed or leased from third
parties which are set forth in the Transferor Disclosure Schedule and identified
as such.
(c) To the Knowledge of Transferor, none of the Acquired
Assets that constitute tangible personal property is held under any lease,
security agreement, conditional sales contract, lien, or other title retention
or security arrangement.
(d) To the Knowledge of Transferor, except as provided in this
Agreement, no restrictions will exist on Acquiror's right to sell, resell,
license or sublicense any of the Acquired Assets or engage in the Business, nor
will any such restrictions be imposed on Acquiror as a consequence of the
transactions contemplated by this Agreement or by any agreement referenced in
this Agreement.
(e) To the Knowledge of Transferor, all of the Acquired Assets
are in good operating condition and repair, as required for their use in the
Business as presently conducted, and conform to all applicable laws, and, to the
Knowledge of the Transferor, no notice of any violation of any law relating to
any of the Acquired Assets or Assumed Liabilities has been received by
Transferor.
4.12 INTELLECTUAL PROPERTY.
(a) To the Knowledge of Transferor with respect to patents,
trademarks, service marks and trade names only (but without having conducted any
special investigation or patent or trademark search), Transferor has sufficient
title and ownership of or licenses to all Transferor Intellectual Property
necessary for its business as now conducted and as proposed to be conducted
without any conflict with, or infringement of, the rights of others. To the
Knowledge of Transferor, the Transferor Disclosure Schedule contains a complete
list of patents and pending patent applications of Transferor. To the Knowledge
of Transferor, there are no outstanding options, licenses or agreements of any
kind relating to the foregoing, nor is Transferor bound by, or a party to, any
options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information, proprietary rights and processes of any other person or entity,
except, in either case, for standard end-user, object code, internal-use
software license and support/maintenance agreements. To the Knowledge of
Transferor, Transferor has not received any communications alleging that
Transferor has violated or, by conducting its business as proposed, would
violate any of the patents, trademarks, service marks, trade names, copyrights
or trade secrets or other proprietary rights of any other person or entity. To
the Knowledge of Transferor, none of its employees is obligated under any
contract (including licenses, covenants or commitments of any nature) or other
agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with the use of his or her best
efforts to promote the interests of Transferor or that would conflict with
Transferor's business as now conducted and as proposed to be conducted. To the
Knowledge of Transferor, neither the execution nor delivery of this Agreement,
nor the carrying on of Transferor's business by the employees of Transferor, nor
the conduct of Transferor's business as proposed, will, to the best of
Transferor's Knowledge,
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conflict with or result in a breach of the terms, conditions or provisions of,
or constitute a default under, any contract, covenant or instrument under which
any of such employees is now obligated.
(b) To the Knowledge of Transferor, neither the development,
manufacture, marketing, license, sale or use of any product or intellectual
property currently licensed, used or sold by Transferor or currently under
development violates or will violate any license or agreement to which
Transferor is a party or infringes or will infringe any copyright, patent,
trademark, service mark, trade secret or other intellectual property or other
proprietary right of any other party. To the Knowledge of Transferor, all
registered trademarks, service marks, patents and copyrights held by Transferor
are valid and subsisting. To the Knowledge of Transferor, there is no pending or
threatened claim or litigation contesting the validity, ownership or right to
use, sell, license or dispose of any of the Acquired Assets (including without
limitation the Transferor Intellectual Property) necessary or required for, or
used in, the conduct of the business of Transferor as presently conducted nor is
there any basis for any such claim, nor has Transferor received any notice
asserting that any such Acquired Asset (including without limitation the
Transferor Intellectual Property) or the proposed use, sale, license or
disposition thereof conflicts or will conflict with the rights of any other
party, nor is there any basis for any such assertion. To the Knowledge of
Transferor, there is no material unauthorized use, infringement or
misappropriation on the part of any third party of the Acquired Assets
(including without limitation the Transferor Intellectual Property); and
(c) To the Knowledge of Transferor, Transferor has taken
reasonable steps (including, without limitation, entering into confidentiality
and non-disclosure agreements with all officers and employees of and consultants
to Transferor with access to or knowledge of the Acquired Assets (including
without limitation the Transferor Intellectual Property) to maintain the secrecy
and confidentiality of, and its proprietary rights in, the Acquired Assets
(including without limitation the Transferor Intellectual Property) necessary or
required for, or used in, the conduct of the business of Transferor as presently
conducted. To the Knowledge of Transferor, the Transferor Disclosure Schedule
contains a complete and accurate list of all applications, filings and other
formal actions made or taken pursuant to federal, state, local and foreign laws
by Transferor to perfect or protect its interest in the Acquired Assets,
including, without limitation, all patents, patent applications, trademarks,
trademark applications, service marks and copyright or mask work registrations.
(d) To the Knowledge of Transferor, all fees to maintain
Transferor's rights in the Transferor Intellectual Property, including, without
limitation, patent and trademark registration and prosecution fees and all
professional fees in connection therewith pertaining to the Transferor
Intellectual Property due and payable on or before the Closing Date, have been
paid by Transferor or will be paid by Transferor within a reasonable period
after the Closing.
(e) Transferor has filed with the United States Patent and
Trademark Office any and all documents necessary to cause any and all of its
patents and trademarks to be held in the name "Elektryon."
4.13 SUPPLY AGREEMENTS.
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(a) The Transferor Disclosure Schedule contains a list
(including names, addresses, contact names and telephone numbers), which is
complete in all material respects, of all agreements providing for payments in
excess of $50,000 or other arrangements providing for payments in excess of
$50,000, pursuant to which Transferor is obligated to supply products, perform
services or otherwise engage in the conduct of the Business (such agreements, as
supplemented below, are referred to collectively as the "Supply Agreements").
Transferor has provided a true and complete copy of all Supply Agreements to
Acquiror. To the Knowledge of Transferor, all such Supply Agreements are in full
force and effect and are valid and effective in accordance with their respective
terms against Transferor, as the case may be, and against the other party
thereto. To the Knowledge of Transferor, Transferor holds right, title and
interest under the terms of each Supply Agreement free of all Liens. Transferor
is not in default under any such Supply Agreement (or has caused an event which
with notice or lapse of time, or both, would constitute a default), nor is the
other party thereto in default (or has caused an event which with notice or
lapse of time, or both, would constitute a default) under any such Supply
Agreement.
(b) To the Knowledge of the Transferor, Transferor has not
entered into any agreement under which Transferor is restricted from selling,
licensing or otherwise distributing any products or services to any class of
customers, in any geographic area, during any period of time or in any segment
of the market.
(c) To the Knowledge of the Transferor, Transferor has not
granted any third party the right to supply any products or services of the
Business to any other third party. No agreement for supply of the products or
services by Transferor obligates Transferor, and no agreement would obligate
Acquiror after the Closing Date, to provide any change in specification of such
products or services or to provide new products or services. No agreement
pursuant to which Transferor has licensed the use of any products to any third
party obligates Transferor to provide any change in specification in the
performance of such products or to provide new products or services.
4.14 RELATED-PARTY TRANSACTIONS. To the Knowledge of Transferor, no
employee, officer, stockholder or director of Transferor or any member of his or
her immediate family or any affiliate thereof is indebted to Transferor, nor is
Transferor indebted (or committed to make loans or extend or guarantee credit)
to any of them. To the Knowledge of Transferor, none of such persons has any
direct or indirect ownership interest in any firm or corporation with which
Transferor is affiliated or with which Transferor has a business relationship,
or any firm or corporation that competes with Transferor, except that employees,
officers, or directors of Transferor and members of their immediate families may
own stock in publicly traded companies that may compete with Transferor. To the
Knowledge of Transferor, no officer, director or stockholder or member of their
immediate families or any affiliate thereof is directly or indirectly interested
in any material contract with Transferor.
4.15 WARRANTIES AND INDEMNITIES. To the Knowledge of Transferor, the
Transferor has not given any warranties or indemnities, express or implied,
relating to products sold or services rendered by Transferor and, to the
Knowledge of Transferor, there are no warranty or indemnity claims currently
pending against Transferor.
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4.16 REAL PROPERTY.
(a) To the Knowledge of Transferor, Schedule 2.1(a) sets forth
a list of all real property currently owned or leased by Transferor and which
relates to the Business and which Acquiror is acquiring hereunder, a description
of the improvements located thereon and the principal activity conducted, and in
the case of any leases, the name of the lessor, the date of the lease and each
amendment thereto and the aggregate annual rental and/or other fees payable
under any such lease. To the Knowledge of Transferor, all such leases are in
full force and effect. To the Knowledge of Transferor, all such leases are valid
and effective in accordance with their respective terms against Transferor and
the other party thereto. To the Knowledge of Transferor, Transferor has
delivered to Acquiror a true, correct and complete copy of each lease identified
on Schedule 2.1(a). The premises or property described in said leases are
presently occupied or used by Transferor as lessee under the terms of said
leases. To the Knowledge of Transferor, Transferor is the legal and equitable
owner and holder of the leasehold interest in each such lease. To the Knowledge
of Transferor, Transferor has all right, title and interest of the lessee under
the terms of said leases, free of all Liens. To the Knowledge of Transferor,
Transferor is not materially in default under any such leases (and has not
caused an event which with notice or lapse of time, or both, would constitute a
default), and to the Transferor's Knowledge, the other party thereto is not in
default (and has not caused an event which with notice or lapse of time, or
both, would constitute a default) under any such leases.
(b) To the Knowledge of Transferor, any real property included
in the Acquired Assets currently has access to public roads or valid easements
providing access to public roads, water supply, storm and sanitary sewer
facilities, telephone, gas and electrical connections, fire protection, drainage
and other public utilities, as is necessary for the conduct of the Business.
(c) To the Knowledge of Transferor, none of the material
structures on any real property included in the Acquired Assets encroaches upon
the real property of another Person, and to the Knowledge of Transferor no
structure of any other Person encroaches upon any real property included in the
Acquired Assets.
(d) To the Knowledge of Transferor, no violation of any law,
regulation or ordinance, including without limitation, laws, regulations or
ordinances relating to zoning, environmental, city planning or similar matters)
relating to the Business or any Acquired Asset currently exists or has existed
at any time. There are no developments affecting any of the Acquired Assets
pending or, to the Knowledge of Transferor, threatened which might materially
detract from the value of such Acquired Assets, materially interfere with any
present or intended use of any such Acquired Assets or have a Material Adverse
Effect on the marketability of the Acquired Assets.
4.17 INVENTORIES. To the Knowledge of Transferor, all of the
Inventories are and will be items of a quality usable or salable in the ordinary
course of business, except for obsolete items and items of below standard
quality, all of which have been written off or written down to net realizable
value in the December 31, 2000 Balance Sheet. The value at which the Inventories
are carried on the December 31, 2000 Balance Sheet reflects an inventory
valuation policy of Transferor which is in accordance with GAAP, consistently
applied. Schedule 4.17 contains a detailed list, which is complete in all
material respects, of Transferor's Inventories as of March
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28, 2001. To the Knowledge of Transferor, Transferor has no commitments to sell
or plans to commit to the sale of such Inventories or the purchase of additional
Inventories other than in the ordinary course of business.
4.18 ACCOUNTS RECEIVABLE. To the Knowledge of Transferor, all accounts
receivable, notes receivable and other receivables included in the Acquired
Assets are valid obligations arising from sales, actually made or services
actually performed. To the Knowledge of the Transferor, all accounts, notes
receivable, and other receivables arising out of or relating to the Business on
December 31, 2000 have been included in the December 31, 2000 Balance Sheet. A
list of accounts receivable as of April 12, 2001 is attached hereto as Schedule
4.18.
4.19 LICENSES AND PERMITS. To the Knowledge of Transferor, Transferor
holds all consents, approvals, registrations, certifications, authorizations,
permits and licenses of, and has made all filings with, or notifications to, all
Governmental Entities pursuant to applicable requirements of all federal, state,
local and foreign laws, ordinances, governmental rules or regulations applicable
to the Business, including, but not limited to, all such laws, ordinances,
governmental rules or regulations relating to registration of the products of
the Business (at their current level of development and use) and certification
of the facilities of the Business. To the Knowledge of Transferor, the Business
is in compliance with all federal, state, local and foreign laws, ordinances,
governmental rules and regulations relating to the products manufactured by the
Business or otherwise related to the Business and Transferor has no reason to
believe that any consents, approvals, authorizations, registrations,
certifications, permits, filings or notifications that it has received or made
to operate the Business are invalid or have been or are being suspended,
canceled, revoked or questioned. To the Knowledge of Transferor, there is no
investigation or inquiry to which Transferor is a party or, to Transferor's
Knowledge, pending or threatened, relating to the Business and its compliance
with applicable federal, state, local or foreign laws, ordinances, governmental
rules or regulations. To the Knowledge of Transferor, each such consent,
approval, registration, certification, authorization, permit or license is
transferable and shall be transferred to Acquiror in accordance with the terms
of this Agreement.
4.20 EMPLOYEES.
(a) Schedule 4.20 sets forth the names, compensation levels
and job titles of all of the employees of Transferor. Except as set forth in
Schedule 4.20, all employees, consultants, officers, directors and shareholders
of Transferor that have had access to the Acquired Assets are parties to a
written agreement (a "Confidentiality Agreement"), under which each such person
or entity (i) is obligated to disclose and transfer to Transferor, without the
receipt by such person of any additional value therefor (other than normal
salary or fees for consulting services), all inventions, developments and
discoveries which, during the period of employment with or performance of
services for Transferor, he or she makes or conceives of either solely or
jointly with others, that relate to any subject matter with which his or her
work for Transferor may be concerned, or relate to or are connected with the
Business, products or projects of Transferor, or involve the use of the time,
material or facilities of Transferor, and (ii) is obligated to maintain the
confidentiality of proprietary information of Transferor. To the Knowledge of
Transferor, none of Transferor's employees, consultants, officers or directors
is obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would conflict with
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their obligation to promote the interests of Transferor with regard to the
Business or the Acquired Assets or that would conflict with the Business or the
Acquired Assets. To the Knowledge of Transferor, neither the execution nor the
delivery of this Agreement, nor the carrying on of the Business by its employees
and consultants, will conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any of such persons or entities are now
obligated. To the Knowledge of Transferor, it is currently not necessary nor
will it be necessary for Transferor to utilize in the Business any inventions of
any of such persons or entities (or people it currently intends to hire) made or
owned prior to their employment by or affiliation with Transferor, nor is it or
will it be necessary to utilize any other assets or rights of any such persons
or entities (or people it currently intends to hire) made or owned prior to
their employment with or engagement by Transferor, in violation of any
registered patents, trade names, trademarks or copyrights or any other
limitations or restrictions to which any such persons or entity is a party or to
which any of such assets or rights may be subject. To the Transferor's
Knowledge, none of Transferor's employees, consultants, officers, directors or
shareholders that has had knowledge or access to information relating to the
Acquired Assets has taken, removed or made use of any proprietary documentation,
manuals, products, materials, or any other tangible item from his or her
previous employer relating to the Acquired Assets by such previous employer
which has resulted in Transferor's access to or use of such proprietary items
included in the Acquired Assets, and Transferor will not gain access to or make
use of any such proprietary items in the Business.
(b) To the Knowledge of Transferor, except for the
Confidentiality Agreements or as otherwise set forth on Schedule 4.20, there are
no written contracts of employment between Transferor and any employee.
(c) Transferor is not a party to a collective bargaining
agreement with any trade union, Transferor's employees are not members of a
trade union certified as a bargaining agent with Transferor, no proceedings to
implement any such collective bargaining agreement or certifications are pending
and Transferor knows of no effort to organize any such employee as a part of any
collective bargaining unit. There is no strike or other labor dispute involving
Transferor pending, or to the best of Transferor's Knowledge, threatened, nor is
Transferor aware of any labor organization activity involving its employees.
4.21 EMPLOYEE BENEFIT AND COMPENSATION PLANS. To the Knowledge of
Transferor, Acquiror will incur no liability with respect to, or on account of,
and Transferor will retain any liability for, and on account of, any employee
benefit plan of Transferor, any of its Affiliates or any predecessor employer of
any employee, including, but not limited to, liabilities Transferor may have to
such employees under all employee benefit schemes, incentive compensation plans,
bonus plans, pension and retirement plans, vacation, profit-sharing plans
(including any profit-sharing plan with a cash-or-deferred arrangement), share
purchase and option plans, savings and similar plans, medical, dental, travel,
accident, life, disability and other insurance and other plans or arrangements,
whether written or oral and whether "qualified" or "non-qualified," and whether
or not subject to ERISA (collectively "Employee Benefit Plans") or to any
employee as a result of termination of employment by Transferor as contemplated
by this Agreement. Except as set forth in Schedule 4.21, neither Transferor, nor
any of its Affiliates, has, with respect to any employee or former employee,
maintained or contributed to, or been obligated or required to contribute to,
any Employee Benefit Plan. To the Knowledge of Transferor, none of the
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Employee Benefit Plans is a "pension plan" within the meaning of Section 3(2) of
ERISA. All Employee Benefit Plans have been administered in material compliance
with their terms and all applicable laws (including, but not limited to ERISA,
the Code and state and federal securities laws). Except as may be required
pursuant to Section 601 of ERISA, none of the Employee Benefit Plans provides
for payment of medical or life insurance benefits to employees or beneficiaries
after their termination of employment.
4.22 TAXES. To the Knowledge of Transferor, all Taxes have been or will
be paid by Transferor for all periods (or portions thereof) prior to and
including the Closing Date. To the Knowledge of Transferor, Transferor and any
other person required to file returns or reports of Taxes have duly and timely
filed (or will file prior to the Closing Date) all returns and reports of Taxes
required to be filed prior to such date, and all such returns and reports are
true, correct, and complete. To the Knowledge of Transferor, there are no liens
for Taxes on any of the Acquired Assets. To the Knowledge of Transferor,
Transferor has complied with all record keeping and tax reporting obligations
relating to income and employment taxes due with respect to compensation paid to
employees or independent contractors providing services to the Business.
Transferor is not a "foreign person" within the meaning of Section 1445(f)(3) of
the Code. To the Knowledge of Transferor, there are no pending or, to
Transferor's Knowledge, threatened proceedings with respect to Taxes, and there
are no outstanding waivers or extensions of statutes of limitations with respect
to assessments of Taxes. To the Knowledge of Transferor, no agreement or
arrangement regarding compensation of any employee providing services to the
Business provides for any payments which could result in a nondeductible expense
to the Acquiror pursuant to Section 280G of the Code or an excise tax to the
recipient of such payment pursuant to Section 4999 of the Code.
4.23 COMPLIANCE WITH LAW. To the Knowledge of Transferor, the operation
of the Business has been conducted in all material respects in accordance with
all applicable laws, regulations and other requirements of Governmental Entities
having jurisdiction over the same.
4.24 ENVIRONMENTAL MATTERS. This is the exclusive provision containing
representations and warranties of Transferor relating to environmental matters.
(a) DEFINITIONS. For the purposes of this Agreement, the
following terms shall have the meanings set forth below:
(i) "ENVIRONMENTAL CONDITIONS" shall mean any
environmental contamination or pollution or threatened contamination or
pollution of, or the Release or threatened Release of Hazardous Materials into,
the surface water, groundwater, surface soil, subsurface soil, air and land,
which is in violation of applicable Environmental Laws.
(ii) "ENVIRONMENTAL LAWS" shall mean all federal,
regional, state, county or local laws, statutes, ordinances, rules, regulations,
codes, orders, decrees, directives and judgments directly applicable to the
Acquired Assets (when such term ins used in this Section 4.24) or the Acquiror's
assets (when used in Section 5.18 hereof) relating to public health or safety,
pollution, damage to or protection of the environment, Environmental Conditions
or the use, manufacture, processing, distribution, treatment, storage,
generation, disposal, transport or handling of Hazardous Materials, whether
existing in the past or present.
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Environmental Laws shall include, but are not limited to, the following laws,
and the regulations promulgated thereunder, as the same may be amended from time
to time: the Comprehensive Environmental Response Compensation and Liability Act
(42 U.S.C. 9601 et seq.) ("CERCLA"); the Resource Conservation and Recovery Act
(42 U.S.C. 6901 et seq.) ("RCRA"); the Clean Air Act (42 U.S.C. 7401 et seq.);
the Clean Water Act (33 U.S.C. 1251 et seq.); and state environmental laws.
(iii) "ENVIRONMENTAL PERMITS" shall mean all permits,
authorizations, registrations, certificates, licenses, approvals or consents
required under, or issued by any Governmental Entity pursuant to, Environmental
Laws.
(iv) "FORMER FACILITIES" shall mean any plants, offices,
land, manufacturing or other facilities formerly owned, operated, leased,
managed, used, controlled or occupied by Transferor in connection with the
Business.
(v) "HAZARDOUS MATERIALS" shall mean any toxic or
hazardous substance, material or waste and any pollutant or contaminant, or
infectious or radioactive substance or material, or any substances, materials
and wastes defined or regulated under any applicable Environmental Laws,
including without limitation, petroleum, polychlorinated byphenyls and urea
formaldehyde.
(vi) "RELEASE" shall mean any intentional or
unintentional release, discharge, spill, leaking, pumping, pouring, emitting,
emptying, injection, disposal or dumping.
(b) Transferor represents and warrants:
(i) PERMITS. To Transferor's Knowledge, Transferor
possesses all material Environmental Permits necessary in order to conduct the
Business as it is now being conducted. Each such Environmental Permit issued to
Transferor is, to Transferor's Knowledge, in full force and effect. To
Transferor's Knowledge, Transferor is in material compliance with all
requirements, terms and provisions of the Environmental Permits issued to
Transferor and relating to the Business, and has filed on a timely basis (and
updated as required) all reports, notices, applications or other documents
required to be filed pursuant to the Environmental Permits. Schedule 4.24 lists
all of the Environmental Permits relating to the Business which have been issued
to or are held by Transferor which by their terms will expire on or before the
Closing Date or within sixty (60) days thereafter. Transferor shall take all
commercially reasonable actions to have such Environmental Permits renewed or
reissued to Transferor prior to the Closing Date so as to allow Acquiror to
continue the Business without interruption after the Closing Date.
(ii) COMPLIANCE WITH ENVIRONMENTAL LAWS. To the
Transferor's Knowledge, the Business is, and at all times has been, in material
compliance with all Environmental Permits and Environmental Laws applicable to
the Business.
(iii) REPORTS, DISCLOSURES AND NOTIFICATIONS. To the
Transferor's Knowledge, Transferor has filed on a timely basis (and updated as
required) all reports, disclosures, notifications, applications, pollution
prevention, stormwater prevention or discharge prevention or response plans or
other emergency or contingency plans required to be filed under
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Environmental Laws applicable to the Business, including without limitation,
Title III of the Superfund Amendments and Reauthorization Act, 42 U.S.C.
Section 11001 et seq.
(iv) NOTICES. To the Transferor's Knowledge, Transferor
has not received any written notice that remains outstanding or unresolved
asserting that any of the Acquired Assets or Former Facilities: (i) is in
violation of the requirements of any Environmental Permit or Environmental Laws;
(ii) is the subject of any suit, claim, proceeding, demand, order, investigation
or request or demand for information arising under any Environmental Permit or
Environment Laws; or (iii) has actual or potential liability under any
Environmental Laws, including without limitation CERCLA, RCRA, or any comparable
state or local Environmental Laws.
(v) LIENS AND ENCUMBRANCE. No federal, state, local or
municipal governmental agency or authority has obtained or asserted an
encumbrance or lien upon the Acquired Assets or, to the Knowledge of Transferor,
on any of the Former Facilities as a result of any Release, use or cleanup of
any Hazardous Material for which Transferor allegedly is legally responsible.
(vi) STORAGE TRANSPORT OR DISPOSAL OF HAZARDOUS
MATERIALS.
(A) There is not now nor has there ever been during
Transferor's tenure at any of the facilities or Former Facilities included in
the Acquired Assets any areas or vessels used or intended for the treatment,
storage or disposal of Hazardous Materials, including, but not limited to, drum
storage areas, surface impoundments, incinerators, landfills, tanks, lagoons,
ponds, waste piles or deep well injunction systems, except those which, to
Transferor's Knowledge were used or maintained by Transferor in material
compliance with applicable Environmental Laws.
(B) To the Transferor's Knowledge, Transferor, in connection
with the Business, has not transported for, or arranged for the transportation
of, storage, treatment or disposal, by contract, agreement or otherwise, or
arranged for the transportation, storage, treatment or disposal of any Hazardous
Material at or to any location including, without limitation, any location used
for the treatment, storage or disposal of Hazardous Materials.
4.25 MATERIAL CONTRACTS.
(a) To the Knowledge of Transferor, Schedule 4.25 contains a
list of all Contracts which are material to the Business ("Material Contracts").
"Material Contracts" shall include, without limitation, the following and shall
be categorized in the Transferor Disclosure Schedule as follows:
(i) each Contract (other than routine purchase orders
given and pricing quotes received in the ordinary course of the Business and
covering a period of less than one year) for the purchase of inventory, spare
parts, other materials or personal property with any supplier or for the
furnishing of services to the Business under the terms of which Transferor, on
behalf of the Business: (A) paid or otherwise gave consideration of more than
$50,000 in the aggregate during the fiscal year ended December 31, 2000, (B) is
likely to pay or otherwise give consideration of more than $50,000 in the
aggregate during the fiscal year ending December 31,
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2001, (C) is likely to pay or otherwise give consideration of more than $50,000
in the aggregate over the remaining term of such contract or (D) cannot be
canceled without penalty or further payment of less than $50,000;
(ii) each customer contract and agreement of the
Business (other than routine purchase orders, pricing quotes with open
acceptance and other tender bids, in each case, entered into in the ordinary
course of business and covering a period of less than one year) which (A)
involved consideration of more than $50,000 in the aggregate during the fiscal
year ended December 31, 2000, (B) is likely to involve consideration of more
than $50,000 in the aggregate during the fiscal year ending December 31, 2001,
(C) is likely to involve consideration of more than $50,000 in the aggregate
over the remaining term of the contract or (D) cannot be canceled without
penalty or further payment of less than $50,000;
(iii) (A) all distributor, manufacturer's
representative, broker, franchise, agency and dealer contracts and agreements of
the Business (specifying on a matrix, in the case of distributor agreements, the
name of the distributor, product, territory, termination date and exclusivity
provisions) and (B) all sales promotion, market research, marketing and
advertising contracts and agreements of the Business which: (1) involved
consideration of more than $50,000 in the aggregate during the fiscal year ended
December 31, 2000 or (2) are likely to involve consideration of more than
$50,000 in the aggregate during the fiscal year ending December 31, 2001 or (3)
are likely to involve consideration of more than $50,000 in the aggregate over
the remaining term of the contract;
(iv) all management contracts with independent
contractors or consultants (or similar arrangements) of the Business and which
(A) involved consideration of more than $50,000 in the aggregate during the
fiscal year ended December 31, 2000, (B) are likely to involve consideration of
more than $50,000 in the aggregate during the fiscal year ending December 31,
2001, or (C) are likely to involve consideration of more than $50,000 in the
aggregate over the remaining term of the contract;
(v) all contracts and agreements (excluding routine
checking account overdraft agreements involving petty cash amounts) under which
the Business has created, incurred, assumed or guaranteed (or may create, incur,
assume or guarantee) indebtedness or under which the Business has imposed (or
may impose) a security interest or lien on any of its assets, whether tangible
or intangible, to secure indebtedness;
(vi) all contracts and agreements that limit the ability
of any Person related to the Business, or any of its affiliates, to compete in
any line of business or with any person or in any geographic area or during any
period of time, or to solicit any customer or client;
(vii) all Contracts pursuant to which the Business has
agreed to supply products to a customer at specified prices, whether directly or
through a specific distributor, manufacturer's representative or dealer; and
(viii) all other Contracts (A) which are material to the
Business or (B) the absence of which would have a Material Adverse Effect on the
Business.
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(b) To the Knowledge of Transferor, each Material Contract is
a legal, valid and binding agreement, and, to the Knowledge of Transferor, none
of the Material Contracts is in default by its terms or has been canceled by the
other party; to the Knowledge of Transferor, Transferor is not in receipt of any
claim of default under any such agreement; and Transferor does not anticipate
any termination or change to, or receipt of a proposal with respect to, any such
agreement as a result of the transactions contemplated hereby. Transferor has
furnished Acquiror with true and complete copies of all such agreements together
with all amendments, waivers or other changes thereto.
4.26 PRODUCTS. To the Knowledge of Transferor, each of the products and
services produced, sold or provided by Transferor in connection with the
Business is, and at all times has been, in compliance in all material respects
with all applicable federal, state, local and foreign laws and regulations and
is, and at all relevant times has been, fit for the ordinary purposes for which
it is intended to be used and conforms in all material respects to any promises
or affirmations of fact made in connection with the sale of such product or
service. To the Knowledge of Transferor, there is no design defect with respect
to any of such products, and each of such products contains adequate warnings,
presented in a reasonably prominent manner, in accordance with applicable laws
and current industry practice with respect to its contents and use.
4.27 PRODUCT LIABILITY. To the Knowledge of Transferor, there are no
claims, actions, suits, inquiries, proceedings or investigations pending by or
against Transferor, relating to any products of the Business and containing
allegations that such products are defective or were improperly designed or
manufactured or improperly labeled or otherwise improperly described for use.
4.28 LITIGATION; OTHER CLAIMS.
(a) To the Knowledge of Transferor, there are no claims,
actions, suits, inquiries, proceedings, or investigations against Transferor, or
any of its officers, directors or shareholders, relating to the Business, the
Acquired Assets or Transferor's employees which are currently pending or
threatened, at law or in equity or before or by any Governmental Entity, or
which challenges or seeks to prevent, enjoin, alter or materially delay any of
the transactions contemplated hereby, nor to the Knowledge of Transferor is
there any basis for such claims, actions, suits, inquiries, proceedings, or
investigations; and no Governmental Entity has at any time challenged or
questioned the legal right of Transferor to manufacture, offer or sell any of
its products or services in the present manner or style thereof.
(b) To the Knowledge of Transferor, there are no grievance or
arbitration proceedings pending or threatened, and there are no actual or
threatened strikes or work stoppages with respect to the Business, the Acquired
Assets or Transferor's employees, nor to the Knowledge of Transferor is there
any basis for such proceedings or events.
4.29 DEFAULTS. To the Knowledge of Transferor, Transferor is not in
default under or with respect to any judgment, order, writ, injunction or decree
of any court or any Governmental Entity. To the Knowledge of Transferor, there
does not exist any default by Transferor or by any other Person, or event that,
with notice or lapse of time, or both, would constitute a default under
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any agreement entered into by Transferor as part of the operations of the
Business which could reasonably be expected to have a Material and Adverse
Effect on the Business or the Acquired Assets, and no notices of breach thereof
have been received by Transferor.
4.30 SCHEDULES. To the Knowledge of Transferor, the schedules
describing the Acquired Assets are complete and accurate and describe the assets
in the possession of, or used by Transferor in connection, with the Business. To
the Knowledge of Transferor, the property listed in such Schedules constitutes
all of the tangible and intangible property necessary for the conduct by
Transferor of the Business.
4.31 MANUFACTURING AND MARKETING RIGHTS. To the Knowledge of
Transferor, Transferor has not granted rights to manufacture, produce, assemble,
license, market or sell its products to any other person and is not bound by any
agreement that affects Transferor's exclusive right to develop, manufacture,
assemble, distribute, market or sell its products.
4.32 FULL DISCLOSURE. To the Knowledge of Transferor, there are no
facts pertaining to the Acquired Assets which have a Material Adverse Effect on
the Business. To the Knowledge of Transferor, neither this Agreement nor any
other agreement, exhibit, schedule or officer's certificate being entered into
or delivered pursuant to this Agreement contains any untrue statement of a
material fact or omits to state any material fact necessary in order to make the
statements contained in such document misleading.
4.33 BROKERS AND FINDERS. Neither Transferor nor any of its officers,
directors or employees has employed any broker or finder or incurred any
liability for any brokerage fee, commission or finder's fee in connection with
the transactions contemplated by this Agreement.
4.34 FAIR CONSIDERATION; NO FRAUDULENT CONVEYANCE. The transfer of the
Acquired Assets pursuant to this Agreement is made in exchange for fair and
equivalent consideration. Transferor is not now insolvent and will not be
rendered insolvent by the sale, transfer and assignment of the Acquired Assets
pursuant to the terms of this Agreement. Transferor is not entering into the
Agreement or any of the other agreements referenced in this Agreement with the
intent to defraud, delay or hinder its creditors and the consummation of the
transactions contemplated by this Agreement, and the other agreements referenced
in this Agreement, will not have any such effect. The transactions contemplated
in this Agreement or any agreements referenced in this Agreement will not
constitute a fraudulent conveyance, or otherwise give rise to any right of any
creditor of Transferor to any of the Acquired Assets after Closing.
4.35 INSURANCE. The Transferor Disclosure Schedule lists all insurance
policies and fidelity bonds covering the Acquired Assets. There is no claim by
Transferor pending under any of such policies or bonds as to which coverage has
been questioned, denied or disputed by the underwriters of such policies and
bonds. All premiums due and payable under all such policies and bonds have been
paid and Transferor is otherwise in material compliance with the terms of such
policies and bonds (or other policies and bonds providing substantially similar
insurance coverage). There is no threatened termination of, or material premium
increase with respect to, any of such policies.
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4.36 ECOM REPORT. All performance data set forth in Transferor's ECOM
report dated November 17, 2000 is accurate and complete, subject to the
qualifications and limitations set forth therein.
4.37 FIELD TEST UNITS. Schedule 4.37 contains a list of the number of
Transferor's field test units, their current locations and the date of delivery
to such sites. Transferor hereby confirms that it has no material obligations
with respect to such field test units.
4.38 PURCHASE ENTIRELY FOR OWN ACCOUNT. Transferor hereby confirms,
that the shares of Common Stock to be received by Transferor (the "Securities")
will be acquired for investment for Transferor's own account, not as a nominee
or agent, and not with a view to the resale or distribution of any part thereof,
and that Transferor has no present intention of selling, granting any
participation in, or otherwise distributing the same, except that Transferor
intends to transfer the Securities to a Liquidating Trust for the benefit of its
shareholders, which in turn is expected to transfer the Securities to its
beneficiaries each in accordance with the terms of Section 6.8 hereof. By
executing this Agreement, Transferor further represents that Transferor does not
have any contract, undertaking, agreement or arrangement with any person to
sell, transfer or grant participations to such person or to any third person,
with respect to any of the Securities.
4.39 DISCLOSURE OF INFORMATION. Subject to the truth, accuracy and
completeness of the representations made by Acquiror in Section 5 of this
Agreement, including the Acquiror Disclosure Schedule, Transferor believes it
has received all the information it considers necessary or appropriate for
deciding whether to acquire the shares of Common Stock being issued hereunder.
Transferor further represents that it has had an opportunity to ask questions
and receive answers from Acquiror regarding the terms and conditions of the
offering of the Common Stock and the business, properties, prospects and
financial condition of Acquiror. The foregoing, however, does not limit or
modify the representations and warranties of Acquiror in Section 5 of this
Agreement or the right of Transferor to rely thereon.
4.40 INVESTMENT EXPERIENCE. Transferor has not been organized for the
purpose of acquiring the shares of Common Stock being issued hereunder.
4.41 RESTRICTED SECURITIES. Transferor understands that the Securities
it is acquiring are characterized as "restricted securities" under the federal
securities laws inasmuch as they are being acquired from Acquiror in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Act, only in certain limited circumstances. In this connection, Transferor
represents that it is familiar with SEC Rule 144, as presently in effect, and
understands the resale limitations imposed thereby and by the Act.
4.42 FURTHER LIMITATIONS ON DISPOSITION. Without in any way limiting
the representations set forth above, Transferor further agrees not to make any
disposition of all or any portion of the Securities unless and until the
transferee has agreed in writing for the benefit of Acquiror to be bound by this
Section 4.42 provided and to the extent this Section 4.42 is then applicable,
and:
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(a) There is then in effect a Registration Statement under the
Act covering such proposed disposition and such disposition is made in
accordance with such Registration Statement; or
(b) (i) Transferor shall have notified Acquiror of the
proposed disposition and shall have furnished Acquiror with a detailed statement
of the circumstances surrounding the proposed disposition, and (ii) if
reasonably requested by Acquiror, Transferor shall have furnished Acquiror with
an opinion of counsel, reasonably satisfactory to Acquiror, that such
disposition will not require registration of such shares under the Act. It is
agreed that Acquiror will not require opinions of counsel for transactions made
pursuant to Rule 144 except in unusual circumstances.
(c) Notwithstanding the provisions of subsection 4.42(a) and
subsection 4.42(b) above, no such registration statement or opinion of counsel
shall be necessary for (i) a transfer by Transferor to any Transferor Affiliate,
if the transferee agrees in writing to be subject to the terms hereof to the
same extent as if he, she or it were an original party hereto. For purposes of
this Agreement, "Transferor Affiliate" shall mean any person or entity that
directly or indirectly through one or more intermediaries controls, is
controlled by or is under common control with Transferor. The term "control" as
used in the preceding sentence (including the terms "controlling," "controlled
by" and "under common control with") means the direct or indirect possession of
the power (a) to vote 20% or more of the outstanding voting securities or voting
interest in such entity or (b) otherwise to direct the management or investment
policies of such entities, by contract or otherwise.
4.43 Legends. It is understood that the certificates evidencing the
Securities may bear one or all of the following legends:
(a) "These securities have not been registered under the
Securities Act of 1933, as amended. They may not be sold, offered for sale,
pledged or hypothecated in the absence of a registration statement in effect
with respect to the securities under such Act or an opinion of counsel
satisfactory to Acquiror that such registration is not required or unless sold
pursuant to Rule 144 of such Act."
(b) Any legend required by the laws of the State of
California, including any legend required by the California Department of
Corporations and Sections 417 and 418 of the California Corporations Code.
5. REPRESENTATIONS AND WARRANTIES OF ACQUIROR.
Each representation and warranty of the Acquiror is qualified by any
exception or disclosure set forth in the Acquiror Disclosure Schedule attached
hereto, which exceptions specifically reference the Section(s) to be qualified.
Acquiror represents and warrants to Transferor as follows:
5.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION Acquiror is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority and
all necessary permits, authorizations, consents and approvals of all Government
Entities to own, lease and operate its assets and to carry on its
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business as now conducted and as proposed to be conducted, except where failure
to have such would not have a Material Adverse Effect, to execute, deliver and
perform this Agreement and each other agreement contemplated hereby to which
Acquiror is a party, and to issue and sell the shares of Common Stock being
issued hereunder. Acquiror is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure to be so qualified and in
good standing would have a Material Adverse Effect. Acquiror has made available
to Transferor true and complete copies of the organization and governance
documents of Acquiror, as currently in effect.
5.2 CAPITALIZATION AND VOTING RIGHTS. As of April 16, 2001, the
authorized capital of Acquiror consists of:
(a) Preferred Stock. 45,400,000 shares of Preferred Stock, par
value $0.0001 (the "Preferred Stock"), of which 3,500,000 shares have been
designated Series A Preferred Stock (the "Series A Preferred Stock"), of which
2,525,055 are issued and outstanding and up to 672,964 of which will be issued
upon the exercise of outstanding warrants for the Series A Preferred Stock; and
15,000,000 shares have been designated Series B Preferred Stock (the "Series B
Preferred Stock"), of which 9,727,161 are issued and outstanding and up to
5,249,157 of which will be issued upon the exercise of warrants for the Series B
Preferred Stock; and 10,900,000 shares have been designated Series C Preferred
Stock (the "Series C Preferred Stock"), of which 6,400,000 are issued and
outstanding and up to 4,500,000 of which will be issued upon the exercise of
warrants for the Series C Preferred Stock; and 14,000,000 shares have been
designated Series D Preferred Stock (the "Series D Preferred Stock"), of which
up to 6,300,000 are issuable upon conversion of certain Bridge Loan Agreements,
dated February 20, 2001 between Acquiror and the lenders named therein (the
"Bridge Loan Agreements") and up to 7,700,000 of which will be issued upon the
exercise of warrants for the Series D Preferred Stock; and 2,000,000 of which
are undesignated.
(b) Common Stock. 75,000,000 shares of common stock, par value
$0.0001 ("Common Stock"), of which 10,725,731 shares are issued and outstanding.
(c) The outstanding shares of Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock and Common Stock are all duly and
validly authorized and issued, fully paid and nonassessable, and were issued in
accordance with the registration or qualification provisions of the Securities
Act of 1933, as amended (the "Act"), and any relevant state securities laws, or
pursuant to valid exemptions therefrom.
Except for (A) the conversion privileges of the Series A
Preferred Stock, (B) the conversion privileges of the Series B Preferred Stock,
(C) the conversion privileges of the Series C Preferred Stock, (D) the
conversion privileges of the Series D Preferred Stock issuable under the Bridge
Loan Agreements, (E) the rights provided in Section 2.4 of the Investors' Rights
Agreement, (F) currently outstanding options to purchase 200,000 shares of
Common Stock granted to employees, (G) currently outstanding options to purchase
1,678,344 shares of Common Stock granted to employees and other service
providers pursuant to Acquiror's 1998 Stock Option Plan (the "Option Plan"), (H)
currently outstanding warrants to purchase 672,964 shares of Series A Preferred
Stock, (I) currently outstanding warrants to purchase 5,249,157 shares of Series
B Preferred Stock, (J) currently outstanding warrants to purchase 4,500,000
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shares of Series C Preferred Stock, (K) currently outstanding warrants to
purchase 7,700,000 shares of Series D Preferred Stock, and (L) currently
outstanding warrants to purchase 208,776 shares of Common Stock granted to DG
Smith & Co., there are not outstanding any options, warrants, rights (including
conversion or preemptive rights), agreements for the purchase or acquisition
from Acquiror of any shares of its capital stock or other contracts or other
rights, including preemptive or similar rights, to purchase or otherwise
acquire, or sell or otherwise transfer, or otherwise relating to, any issued or
unissued securities of Acquiror pursuant to any provision of law, the Acquiror's
organizational documents, any contract to which Acquiror is a party or
otherwise. Acquiror is not a party to, and to the best knowledge of Acquiror,
there is not, any contract (other than the Investors' Rights Agreement and as
provided in this Section 5.2) or encumbrance (including a right of first
refusal, right of first offer, proxy, voting agreement, voting trust,
registration rights agreement, or shareholders' agreement, whether or not
Acquiror is a party thereto) with respect to the purchase, sale or voting of any
equity interests in Acquiror (whether outstanding or issuable upon conversion or
exercise of outstanding securities). In addition to the aforementioned options,
Acquiror has reserved an additional 586,135 shares of its Common Stock for
purchase upon the exercise of options to be granted in the future under the
Option Plan. Acquiror is not a party or subject to any agreement or
understanding, and, to the best of Acquiror's knowledge, there is no agreement
or understanding between any persons and/or entities, which affects or relates
to the voting or giving of written consents with respect to any security or by a
director of Acquiror.
5.3 SUBSIDIARIES. Acquiror does not presently own or control, directly
or indirectly, any interest in any other corporation, association or other
business entity. Acquiror is not a participant in any joint venture, partnership
or similar arrangement.
5.4 AUTHORITY The execution and delivery of this Agreement (and all
other agreements and instruments contemplated under this Agreement) by Acquiror,
the performance by Acquiror of its obligations hereunder and thereunder, and the
consummation by Acquiror of the transactions contemplated hereby and thereby
have been duly authorized by all necessary action by the Board of Directors of
Acquiror, and no other act or proceeding on the part of or on behalf of Acquiror
or its shareholders, other than the consent of the shareholders to this
Agreement and the transactions contemplated hereby, is necessary to approve the
execution and delivery of this Agreement and such other agreements and
instruments, the performance by Acquiror of its obligations hereunder and
thereunder and the consummation of the transactions contemplated hereby and
thereby. The signatory officers of Acquiror have the power and authority to
execute and deliver this Agreement and all of the other agreements and
instruments to be executed and delivered by Acquiror pursuant hereto, to
consummate the transactions hereby and thereby contemplated and to take all
other actions required to be taken by Acquiror pursuant to the provisions hereof
and thereof.
5.5 EXECUTION AND BINDING EFFECT. This Agreement has been duly and
validly executed and delivered by Acquiror and constitutes, and the other
agreements and instruments to be executed and delivered by Acquiror pursuant
hereto, upon their execution and delivery by Acquiror, will constitute
(assuming, in each case, the due and valid authorization, execution and delivery
thereof by Transferor), legal, valid and binding agreements of Acquiror,
enforceable against Acquiror in accordance with their respective terms.
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5.6 VALID ISSUANCE OF COMMON STOCK. The shares of Common Stock that are
being issued by Acquiror hereunder, when issued, sold and delivered in
accordance with the terms of this Agreement for the consideration expressed
herein, will be duly and validly issued, fully paid and nonassessable, and will
be free of restrictions on transfer other than restrictions on transfer under
this Agreement and under applicable state and federal securities laws.
5.7 GOVERNMENTAL CONSENTS. To the knowledge of Acquiror, no consent,
approval, order or authorization of, or registration, qualification,
designation, declaration or filing with, any federal, state or local
governmental authority on the part of Acquiror is required in connection with
the consummation of the transactions contemplated by this Agreement, except (i)
the filing of the Restated Certificate with the Secretary of State of Delaware,
(ii) any filing required pursuant to the Fairness Hearing (as defined in Section
8.7) held by the California Department of Corporations or (iii) such other
post-closing filings as may be required in any state or by the SEC.
5.8 NO UNDISCLOSED LIABILITIES; SOLVENCY. To the knowledge of Acquiror,
Acquiror does not have any liability, indebtedness, obligation, expense, claim,
deficiency, guaranty or endorsement of any type, in excess of $75,000
individually or in the aggregate, whether accrued, absolute, contingent,
matured, unmatured or other (whether or not required by GAAP to be reflected in
the Acquiror Financial Statements which (i) has not been reflected in the
December 31, 2000 Balance Sheet, or (ii) has not arisen in the ordinary course
of the Acquiror's business since December 31, 2000. Acquiror is able to pay its
obligations when due, is otherwise financially solvent, and is not the subject
of any bankruptcy, trusteeship or any other proceeding seeking reorganization of
its debts.
5.9 NO VIOLATION
To the knowledge of Acquiror, neither the execution, delivery and
performance of this Agreement and all of the other agreements and instruments to
be executed and delivered pursuant hereto, nor the consummation of the
transactions contemplated hereby or thereby, will, with or without the passage
of time or the delivery of notice or both, (a) conflict with, violate or result
in any breach of the terms, conditions or provisions of the Certificate of
Incorporation or Bylaws of Acquiror, (b) conflict with or result in a violation
or breach of, or constitute a default or require consent of any Person (or give
rise to any right of termination, cancellation or acceleration) under, any of
the terms, conditions or provisions of any contract, notice, bond, mortgage,
indenture, license, franchise, permit, agreement, lease or other instrument or
obligation to which Acquiror is a party or by which Acquiror may be bound, (c)
violate any statute, ordinance or law or any rule, regulation, order, writ,
injunction or decree of any Governmental Entity applicable to Acquiror or by
which any properties or assets of Acquiror may be bound, except where such
violation would not have a Material Adverse Effect on Acquiror's business or (d)
result in any cancellation of, or obligation to repay, any grant, loan or other
financial assistance received by Acquiror from any Governmental Entity. No "bulk
sales" legislation applies to the transactions contemplated by this Agreement.
5.10 CONSENTS. To the knowledge of Acquiror, Schedule 5.10 sets forth
each agreement, contract or other instrument binding upon Acquiror requiring a
consent as a result of
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the execution, delivery and performance of this Agreement or the consummation of
the transactions contemplated hereby (each a "Required Consent").
5.11 OFFERING. Subject in part to the truth and accuracy of
Transferor's representations set forth in Sections 4.40 through 4.44 of this
Agreement, the offer, sale and issuance of the shares of Common Stock as
contemplated by this Agreement are exempt from the registration requirements of
any applicable state or federal securities laws, and neither Acquiror nor any
authorized agent acting on its behalf will take any action hereafter that would
cause the loss of such exemption.
5.12 LITIGATION.
(a) To the knowledge of Acquiror, there is no action, suit,
proceeding or investigation pending or, to Acquiror's knowledge, threatened
against Acquiror that questions the validity of this Agreement or the right of
Acquiror to enter into such agreement, or to consummate the transactions
contemplated hereby, or that might result, either individually or in the
aggregate, in any Material Adverse Effect on Acquiror or result in any change in
the current equity ownership of Acquiror. To the knowledge of Acquiror, the
foregoing includes, without limitation, actions, suits, proceedings or
investigations, pending or threatened, involving the prior employment of any of
Acquiror's employees, their use in connection with Acquiror's business of any
information or techniques allegedly proprietary to them or to any of their
former employers, or their obligations under any agreements with prior
employers. To the knowledge of Acquiror, Acquiror is not a party or subject to
the provisions of any order, writ, injunction, judgment or decree of any court
or government agency or instrumentality. To the knowledge of Acquiror, no
Governmental Entity has at any time challenged or questioned the legal right of
Acquiror to manufacture, offer or sell any of its products or services in the
present manner or style thereof. To the knowledge of Acquiror, there is no
action, suit, proceeding or investigation by Acquiror currently pending or that
Acquiror intends to initiate.
(b) To Acquiror's knowledge, there are no grievance or
arbitration proceedings pending or threatened, and there are no actual or
threatened strikes or work stoppages with respect to Acquiror's business or its
employees, nor is Acquiror aware of any basis for such proceedings or events.
5.13 PROPRIETARY INFORMATION AGREEMENTS. Each employee, officer and
consultant of Acquiror has executed a Proprietary Information and Inventions
Agreement in substantially the form provided to special counsel to Transferor.
Acquiror is not aware that any of its employees, officers or consultants are in
violation thereof, and Acquiror will use its diligent efforts to prevent any
such violation.
5.14 PATENTS AND TRADEMARKS.
(a) To the best of its knowledge with respect to patents,
trademarks, service marks and trade names only (but without having conducted any
special investigation or patent or trademark search), Acquiror has sufficient
title and ownership of or licenses to all patents, trademarks, service marks,
trade names, copyrights, trade secrets, information, proprietary rights and
processes ("Acquiror Intellectual Property") necessary for its business as now
conducted and
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as proposed to be conducted without any conflict with, or infringement of, the
rights of others. The Acquiror Disclosure Schedule contains a complete list of
patents and pending patent applications of Acquiror. There are no outstanding
options, licenses or agreements of any kind relating to the foregoing, nor is
Acquiror bound by, or a party to, any options, licenses or agreements of any
kind with respect to the patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information, proprietary rights and
processes of any other person or entity, except, in either case, for standard
end-user, object code, internal-use software license and support/maintenance
agreements. Acquiror has not received any communications alleging that Acquiror
has violated or, by conducting its business as proposed, would violate any of
the patents, trademarks, service marks, trade names, copyrights or trade secrets
or other proprietary rights of any other person or entity. Acquiror is not aware
that any of its employees is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with the use of his or her best efforts to promote the interests of
Acquiror or that would conflict with Acquiror's business as now conducted and as
proposed to be conducted. Neither the execution nor delivery of this Agreement,
nor the carrying on of Acquiror's business by the employees of Acquiror, nor the
conduct of Acquiror's business as proposed, will, to the best of Acquiror's
knowledge, conflict with or result in a breach of the terms, conditions or
provisions of, or constitute a default under, any contract, covenant or
instrument under which any of such employees is now obligated.
(b) Notwithstanding any limitation set forth in paragraph (a)
above, Acquiror represents and warrants that with respect to any patent of
Acquiror relating to an invention or co-invention of Robert Dibble, Acquiror has
title and ownership of such patent without any conflict with, or infringement
of, the rights of others. After due inquiry of Mr. Dibble, Acquiror is not aware
that Mr. Dibble is obligated under any contract (including licenses, covenants
or commitments of any nature) or other agreement, or subject to any judgment,
decree or order of any court or administrative agency, that would interfere with
the use of his best efforts to promote the interests of Acquiror or that would
conflict with Acquiror's business as now conducted and as proposed to be
conducted. Neither the execution nor delivery of this Agreement, nor the
carrying on of Acquiror's business by the employees of Acquiror, nor the conduct
of Acquiror's business as proposed, will conflict with or result in a breach of
the terms, conditions or provisions of, or constitute a default under, any
contract, covenant or instrument under which Mr. Dibble is now obligated.
(c) To the knowledge of Acquiror, neither the development,
manufacture, marketing, license, sale or use of any product or intellectual
property currently licensed, used or sold by Acquiror or currently under
development violates or will violate any license or agreement to which Acquiror
is a party or infringes or will infringe any copyright, patent, trademark,
service mark, trade secret or other intellectual property or other proprietary
right of any other party. To the knowledge of Acquiror, all registered
trademarks, service marks, patents and copyrights held by Acquiror are valid and
subsisting. To the knowledge of Acquiror, there is no pending or threatened
claim or litigation contesting the validity, ownership or right to use, sell,
license or dispose of any of the Acquiror's assets (including without limitation
the Acquiror Intellectual Property) necessary or required for, or used in, the
conduct of the business of Acquiror as presently conducted nor is there any
basis for any such claim, nor has Acquiror received any notice asserting that
any such asset (including without limitation the Acquiror
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Intellectual Property) or the proposed use, sale, license or disposition thereof
conflicts or will conflict with the rights of any other party, nor is there any
basis for any such assertion. To the knowledge of the Acquiror, there is no
material unauthorized use, infringement or misappropriation on the part of any
third party of the Acquiror's assets (including without limitation the Acquiror
Intellectual Property).
(d) To the knowledge of Acquiror, Acquiror has taken
reasonable steps (including, without limitation, entering into confidentiality
and non-disclosure agreements with all officers and employees of and consultants
to Acquiror with access to or knowledge of the Acquiror's assets (including
without limitation the Acquiror Intellectual Property) to maintain the secrecy
and confidentiality of, and its proprietary rights in, the Acquiror's assets
(including without limitation the Acquiror Intellectual Property) necessary or
required for, or used in, the conduct of the business of Acquiror as presently
conducted. To the knowledge of Acquiror, the Acquiror Disclosure Schedule
contains a complete and accurate list of all applications, filings and other
formal actions made or taken pursuant to federal, state, local and foreign laws
by Acquiror to perfect or protect its interest in its assets, including, without
limitation, all patents, patent applications, trademarks, trademark
applications, service marks and copyright or mask work registrations.
(e) To the knowledge of Acquiror, all fees to maintain
Acquiror's rights in the Acquiror Intellectual Property, including, without
limitation, patent and trademark registration and prosecution fees and all
professional fees in connection therewith pertaining to the Acquiror
Intellectual Property due and payable on or before the Closing Date, have been
paid by Acquiror or will be paid by Acquiror within a reasonable period after
the Closing.
5.15 AGREEMENTS; ACTION.
(a) Except for agreements explicitly contemplated hereby, to
the knowledge of Acquiror, there are no agreements, understandings or proposed
transactions between Acquiror and any of its officers, directors, affiliates, or
any affiliate thereof.
(b) To the knowledge of Acquiror, there are no agreements,
understandings, instruments, contracts, proposed transactions, judgments,
orders, writs or decrees to which Acquiror is a party or by which it is bound
that may involve (i) obligations (contingent or otherwise) of, or payments to
Acquiror in excess of, $50,000, (ii) the license of any patent, copyright, trade
secret or other proprietary right to or from Acquiror (other than the license of
Acquiror's software and products in the ordinary course of business), or (iii)
provisions restricting or affecting the development, manufacture or distribution
of Acquiror's products or services.
(c) To the knowledge of Acquiror, Acquiror has not (i)
declared or paid any dividends or authorized or made any distribution upon or
with respect to any class or series of its capital stock, (ii) incurred any
indebtedness for money borrowed or any other liabilities individually in excess
of $50,000 or, in the case of indebtedness and/or liabilities individually less
than $50,000, in excess of $175,000 in the aggregate, (iii) made any loans or
advances to any person, other than ordinary advances for travel expenses, or
(iv) sold, exchanged or otherwise
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disposed of any of its assets or rights, other than the sale of its inventory in
the ordinary course of business.
(d) For the purposes of subsection 5.15(b) and subsection
5.15(c) above, all indebtedness, liabilities, agreements, understandings,
instruments, contracts and proposed transactions involving the same person or
entity (including persons or entities Acquiror has reason to believe are
affiliated therewith) shall be aggregated for the purpose of meeting the
individual minimum dollar amounts of such subsections.
(e) To the knowledge of Acquiror, Acquiror is not a party to,
or is not bound by, any contract, agreement or instrument, or subject to any
restriction under its Restated Certificate or Bylaws that adversely affects its
business as now conducted or as proposed to be conducted, its properties or its
financial condition.
(f) To the knowledge of Acquiror, Acquiror has not entered
into any contracts that limit the ability of Acquiror, or any Person related to
Acquiror or any of its affiliates, to compete in any line of business or with
any person or in any geographic area or during any period of time, or to solicit
any customer or client.
(g) To the knowledge of Acquiror, Acquiror has not entered
into any contracts pursuant to which Acquiror has agreed to supply products to a
customer at specified prices, whether directly or through a specific
distributor, manufacturer's representative or deal.
(h) Except as contemplated by this Agreement, Acquiror has not
engaged in the past three (3) months in any discussion (i) with any
representative of any corporation or corporations regarding the consolidation or
merger of Acquiror with or into any such corporation or corporations, (ii) with
any corporation, partnership, association or other business entity or any
individual regarding the sale, conveyance or disposition of all or substantially
all of the assets of Acquiror or a transaction or series of related transactions
in which more than fifty percent (50%) of the voting power of Acquiror is
disposed of, or (iii) regarding any other form of acquisition, liquidation,
dissolution or winding up of Acquiror.
5.16 RELATED-PARTY TRANSACTIONS. To the knowledge of Acquiror, no
employee, officer, stockholder or director of Acquiror or any member of his or
her immediate family or any affiliate thereof is indebted to Acquiror, nor is
Acquiror indebted (or committed to make loans or extend or guarantee credit) to
any of them. To the best of Acquiror's knowledge, none of such persons has any
direct or indirect ownership interest in any firm or corporation with which
Acquiror is affiliated or with which Acquiror has a business relationship, or
any firm or corporation that competes with Acquiror, except that employees,
officers, or directors of Acquiror and members of their immediate families may
own stock in publicly traded companies that may compete with Acquiror. To the
knowledge of Acquiror, no officer, director or stockholder or member of their
immediate families or any affiliate thereof is directly or indirectly interested
in any material contract with Acquiror.
5.17 LICENSES AND PERMITS. To the knowledge of Acquiror, Acquiror holds
all consents, approvals, registrations, certifications, authorizations, permits
and licenses of, and has made all filings with, or notifications to, all
Governmental Entities pursuant to applicable
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requirements of all federal, state, local and foreign laws, ordinances,
governmental rules or regulations applicable to its business, including, but not
limited to, all such laws, ordinances, governmental rules or regulations
relating to registration of the products of its business (at their current level
of development and use) and certification of the facilities of its business. To
the knowledge of Acquiror, Acquiror is in compliance with all federal, state,
local and foreign laws, ordinances, governmental rules and regulations relating
to the products manufactured by Acquiror or otherwise related to Acquiror and
Acquiror has no reason to believe that any consents, approvals, authorizations,
registrations, certifications, permits, filings or notifications that it has
received or made to operate its business are invalid or have been or are being
suspended, canceled, revoked or questioned. To the knowledge of Acquiror, there
is no investigation or inquiry to which Acquiror is a party or, to Acquiror's
knowledge, pending or threatened, relating to its business and its compliance
with applicable foreign, state, local or foreign laws, ordinances, governmental
rules or regulations.
5.18 ENVIRONMENTAL MATTERS. This is the exclusive provision containing
representations and warranties of Acquiror relating to environmental matters.
Acquiror represents and warrants:
(i) PERMITS. To Acquiror's knowledge, Acquiror possesses
all materials Environmental Permits necessary in order to conduct its business
as it is now being conducted. Each such Environmental Permit issued to Acquiror
is, to Acquiror's knowledge, in full force and effect. To Acquiror's knowledge,
Acquiror is in material compliance with all requirements, terms and provisions
of the Environmental Permits issued to Acquiror and relating to its business,
and has filed on a timely basis (and updated as required) all reports, notices,
applications or other documents required to be filed pursuant to the
Environmental Permits. Schedule 5.18 lists all of the Environmental Permits
relating to Acquiror's business which have been issued to or are held by
Acquiror which by their terms will expire on or before the Closing Date or
within sixty (60) days thereafter.
(ii) COMPLIANCE WITH ENVIRONMENTAL LAWS. To the
Acquiror's knowledge, its business is, and at all times has been, in material
compliance with all Environmental Permits and Environmental Laws applicable to
its business.
(iii) REPORTS, DISCLOSURES AND NOTIFICATIONS. To the
Acquiror's knowledge, Acquiror has filed on a timely basis (and updated as
required) all reports, disclosures, notifications, applications, pollution
prevention, stormwater prevention or discharge prevention or response plans or
other emergency or contingency plans required to be filed under Environmental
Laws applicable to its business, including without limitation, Title III of the
Superfund Amendments and Reauthorization Act, 42 U.S.C. Section 11001 et seq.
(iv) NOTICES. To the Acquiror's knowledge, Acquiror has
not received any written notice that remains outstanding or unresolved asserting
that any of its assets or facilities, including its formerly owned or operating
properties: (i) is in violation of the requirements of any Environmental Permit
or Environmental Laws; (ii) is the subject of any suit, claim, proceeding,
demand, order, investigation or request or demand for information arising under
any Environmental Permit or Environment Laws; or (iii) has actual or potential
liability
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under any Environmental Laws, including without limitation CERCLA, RCRA, or any
comparable state or local Environmental Laws.
(v) LIENS AND ENCUMBRANCE. No federal, state, local or
municipal governmental agency or authority has obtained or asserted an
encumbrance or lien upon Acquiror's assets or, to the knowledge of Acquiror, on
any of its facilities as a result of any Release, use or cleanup of any
Hazardous Material for which Acquiror allegedly is legally responsible.
(vi) STORAGE TRANSPORT OR DISPOSAL OF HAZARDOUS
MATERIALS.
(A) There is not now nor has there ever been during
Acquiror's tenure at any of the facilities or former owned or leased facilities
any areas or vessels used or intended for the treatment, storage or disposal of
Hazardous Materials, including, but not limited to, drum storage areas, surface
impoundments, incinerators, landfills, tanks, lagoons, ponds, waste piles or
deep well injunction systems, except those which, to Acquiror's knowledge were
used or maintained by Acquiror in material compliance with applicable
Environmental Laws.
(B) To Acquiror's knowledge, Acquiror, in connection
with its business, has not transported for, or arranged for the transportation
of, storage, treatment or disposal, by contract, agreement or otherwise, or
arranged for the transportation, storage, treatment or disposal of any Hazardous
Material at or to any location including, without limitation, any location used
for the treatment, storage or disposal of Hazardous Materials.
5.19 MANUFACTURING AND MARKETING RIGHTS. To Acquiror's knowledge,
Acquiror has not granted rights to manufacture, produce, assemble, license,
market or sell its products to any other person and is not bound by any
agreement that affects Acquiror's exclusive right to develop, manufacture,
assemble, distribute, market or sell its products.
5.20 FULL DISCLOSURE. To the knowledge of Acquiror, there are no facts
pertaining to its assets or business which have a Material Adverse Effect on
Acquiror. Acquiror has fully provided Transferor with all the information that
Transferor has requested for deciding whether to purchase the shares of Common
Stock being sold hereunder. Neither this Agreement nor any other agreement,
exhibit, schedule or officer's certificate being entered into or delivered
pursuant to this Agreement contains any untrue statement of a material fact or
omits to state any material fact necessary in order to make the statements
contained in such document misleading.
5.21 REGISTRATION RIGHTS. Except as provided in the Investors' Rights
Agreement, Acquiror has not granted or agreed to grant any securities
registration rights, including piggyback rights, to any person or entity.
5.22 CORPORATE DOCUMENTS. The Restated Certificate and the Bylaws of
Acquiror are in the forms previously provided to counsel for Transferor.
5.23 TITLE TO PROPERTY AND ASSETS. Acquiror owns its property and
assets free and clear of all mortgages, liens, loans or encumbrances, except
such encumbrances or liens that arise in the ordinary course of business and do
not materially impair Acquiror's ownership or use of such property or assets.
With respect to the property and assets it leases, Acquiror is in
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compliance with such leases and, to the best of its knowledge, holds a valid
leasehold interest free of any liens, claims or encumbrances. Acquiror holds
good and marketable title, license to or leasehold interest in all of its
assets. To the knowledge of Acquiror, no Person other than Acquiror has any
right or interest in Acquiror's assets, including the right to grant interests
in Acquiror's assets to third parties, except for assets licensed or leased from
third parties which are set forth in the Acquiror's Disclosure Schedule and
identified as such.
5.24 ACQUIROR FINANCIAL STATEMENTS. Acquiror has delivered to
Transferor its unaudited financial statements (balance sheet and statement of
operations, statement of changes in stockholders' equity and statement of cash
flows, including notes thereto) as of December 31, 2000 and for the year then
ended (the "Acquiror Financial Statements"). The Acquiror Financial Statements
have been prepared in accordance with GAAP applied on a consistent basis
throughout the periods indicated and with each other, except that the Acquiror
Financial Statements may not contain all footnotes required by GAAP; provided
that the failure to include footnotes does not result in the omission of any
material information. To the knowledge of Acquiror, the Acquiror Financial
Statements fairly present the financial condition and operating results of
Acquiror as of the dates and for the periods indicated therein. Except as set
forth in the Acquiror Financial Statements, Acquiror has no material
liabilities, contingent or otherwise, other than (i) liabilities incurred in the
ordinary course of business subsequent to December 31, 2000, and (ii)
obligations under contracts and commitments incurred in the ordinary course of
business and not required under GAAP to be reflected in the Acquiror Financial
Statements, which, in both cases, individually or in the aggregate, are not
material to the financial condition or operating results of Acquiror. Except as
disclosed in the notes to the Acquiror Financial Statements, Acquiror is not a
guarantor or indemnitor of any indebtedness of any other person, firm or
corporation. Acquiror maintains and will continue to maintain a standard system
of accounting established and administered in accordance with GAAP.
5.25 ABSENCE OF CERTAIN CHANGES To the knowledge of Acquiror, since
December 31, 2000 there has not been:
(a) any change in the assets, liabilities, financial condition
or operating results of Acquiror from that reflected in the Acquiror Financial
Statements, except changes in the ordinary course of business that have not
been, in the aggregate, materially adverse;
(b) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the assets, properties, financial
condition, operating results, prospects or business of Acquiror (as such
business is presently conducted and as it is proposed to be conducted);
(c) any waiver or compromise by Acquiror of a valuable right
or of a material debt owed to it;
(d) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by Acquiror, except in the ordinary
course of business and that is not material to the assets, properties, financial
condition, prospects, operating results or business of Acquiror (as such
business is presently conducted and as it is proposed to be conducted);
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(e) any material change or amendment to a material contract or
arrangement by which Acquiror or any of its assets or properties is bound or
subject;
(f) any material change in any compensation arrangement or
agreement with any employee, officer or director;
(g) any sale, assignment or transfer of any patents,
trademarks, copyrights, trade secrets or other intangible assets;
(h) any resignation or termination of employment of any key
officer of Acquiror; and Acquiror does not know of the impending resignation or
termination of employment of any such officer;
(i) receipt of notice that there has been a loss of any major
customer of Acquiror, or any material order cancellation by any customer of
Acquiror;
(j) any mortgage, pledge, transfer of a security interest in,
or lien, created by Acquiror, with respect to any of its material properties or
assets, except liens for taxes not yet due or payable;
(k) any loans or guarantees made by Acquiror to or for the
benefit of its employees, stockholders, officers or directors, or any members of
their immediate families or any affiliate thereof, other than travel advances
and other expense advances made in the ordinary course of its business and in
amounts consistent with past practice;
(l) any declaration, setting aside or payment or other
distribution in respect of any of Acquiror's capital stock, or any direct or
indirect redemption, purchase or other acquisition of any of such stock by
Acquiror;
(m) to the best of Acquiror's knowledge, any other event or
condition of any character that might materially and adversely affect the
assets, properties, prospects, financial condition, operating results or
business of Acquiror (as such business is presently conducted and as it is
proposed to be conducted); or
(n) any agreement or commitment by Acquiror to do any of the
things described in this Section 5.25.
5.26 EMPLOYEE BENEFIT PLANS. Acquiror does not have any Employee
Benefit Plans other than its 1998 Stock Option Plan. Schedule 5.26 sets forth a
true and complete list to Acquiror's knowledge of all "employee benefit plans"
within the meaning of Section 3(3) of ERISA, in which employees of the Acquiror
participate (the "Employee Plans"). To Acquiror's knowledge, each Employee Plan
is in substantial compliance with the Code and ERISA.
5.27 TAXES. To the knowledge of Acquiror, all taxes have been or will
be paid by Acquiror for all periods (or portions thereof) prior to and including
the Closing Date. To the knowledge of Acquiror, Acquiror and any other person
required to file returns or reports of taxes have duly and timely filed (or will
file prior to the Closing Date) all returns and reports of taxes required to be
filed prior to such date, and all such returns and reports are true, correct,
and
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complete. To the knowledge of Acquiror, there are no liens for taxes on any of
its assets. Acquiror's returns and reports are true and correct in all material
respects. Acquiror has paid all taxes and other assessments due, except those
contested by it in good faith that are listed in the Acquiror Disclosure
Schedule. To the knowledge of Acquiror, the provision for taxes of Acquiror as
shown in the Acquiror Financial Statements is adequate for taxes due or accrued
as of the date thereof. Acquiror has not elected pursuant to Section 1362(a) of
the Code to be treated as an S corporation or made an election under Section
341(f) of the Code, nor, to the knowledge of Acquiror has it made any other
elections pursuant to the Code (other than elections that relate solely to
methods of accounting, depreciation or amortization) that would have a material
effect on Acquiror, its financial condition, its business as presently conducted
or proposed to be conducted or any of its properties or material assets. To
Acquiror's knowledge, Acquiror has never had any tax deficiency proposed or
assessed against it and has not executed any waiver of any statute of
limitations on the assessment or collection of any tax or governmental charge.
None of Acquiror's federal income tax returns and none of its state income or
franchise tax or sales or use tax returns has ever been audited by federal or
state governmental tax authorities. Since the date of the Acquiror Financial
Statements, to Acquiror's knowledge, Acquiror has not incurred any taxes,
assessments or federal or state governmental charges other than in the ordinary
course of business and, to Acquiror's knowledge, Acquiror has made adequate
provisions on its books of account for all taxes, assessments and federal or
state governmental charges with respect to its business, properties and
operations for such period. To Acquiror's knowledge, Acquiror has withheld or
collected from each payment made to each of its employees and consultants, the
amount of all taxes (including, but not limited to, federal income taxes,
Federal Insurance Contribution Act taxes and Federal Unemployment Tax Act taxes)
required to be withheld or collected therefrom, and has paid the same to the
proper federal or state tax receiving officers or authorized depositories.
Acquiror is not a "foreign person" within the meaning of Section 1445(f)(3) of
the Code. To the knowledge of Acquiror, there are no pending or, to Acquiror's
knowledge, threatened proceedings with respect to Taxes, and there are no
outstanding waivers or extensions of statutes of limitations with respect to
assessments of Taxes. To the knowledge of Acquiror, no agreement or arrangement
regarding compensation of any employee providing services to it provides for any
payments which could result in a nondeductible expense to Acquiror pursuant to
Section 280G of the Code or an excise tax to the recipient of such payment
pursuant to Section 4999 of the Code.
5.28 INSURANCE Acquiror has in full force and effect fire and casualty
insurance policies, with extended coverage, sufficient in amount (subject to
reasonable deductibles) to allow it to replace any of its properties that might
be damaged or destroyed. Acquiror has in full force and effect products
liability in amounts customary for similarly situated companies. Acquiror has in
full force and effect Directors and Officers insurance. All premiums due and
payable under all such policies have been paid and Acquiror is otherwise in
material compliance with the terms of such policies. There is no threatened
termination of, or material premium increase with respect to, any of such
policies.
5.29 MINUTE BOOKS. The minute books of Acquiror provided to Transferor
contain a complete summary of all meetings of directors and stockholders and all
actions taken by written consent without a meeting since the time of
incorporation and reflect all actions referred to in such minutes accurately in
all material respects.
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5.30 EMPLOYEES.
(a) Schedule 5.30 sets forth the names and job titles of all
employees of Acquiror. All employees, consultants, officers, directors and
shareholders of Acquiror that have had access to the Acquired Assets are parties
to a written agreement (a "Confidentiality Agreement"), under which each such
person or entity (i) is obligated to disclose and transfer to Acquiror, without
the receipt by such person of any additional value therefor (other than normal
salary or fees for consulting services), all inventions, developments and
discoveries which, during the period of employment with or performance of
services for Acquiror, he or she makes or conceives of either solely or jointly
with others, that relate to any subject matter with which his or her work for
Acquiror may be concerned, or relate to or are connected with the business,
products or projects of Acquiror, or involve the use of the time, material or
facilities of Acquiror, and (ii) is obligated to maintain the confidentiality of
proprietary information of Acquiror. To the knowledge of Acquiror, none of
Acquiror's employees, consultants, officers or directors is obligated under any
contract (including licenses, covenants or commitments of any nature) or other
agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would conflict with their obligation to promote the
interests of Acquiror with regard to its business or assets or that would
conflict with its business or assets. To the knowledge of Acquiror, neither the
execution nor the delivery of this Agreement, nor the carrying on of its
business by its employees and consultants, will conflict with or result in a
breach of the terms, conditions or provisions of, or constitute a default under,
any contract, covenant or instrument under which any of such persons or entities
are now obligated. To the knowledge of Acquiror, it is currently not necessary
nor will it be necessary for Acquiror to utilize in its business any inventions
of any of such persons or entities (or people it currently intends to hire) made
or owned prior to their employment by or affiliation with Acquiror, nor is it or
will it be necessary to utilize any other assets or rights of any such persons
or entities (or people it currently intends to hire) made or owned prior to
their employment with or engagement by Acquiror, in violation of any registered
patents, trade names, trademarks or copyrights or any other limitations or
restrictions to which any such persons or entity is a party or to which any of
such assets or rights may be subject. To the Acquiror's knowledge, none of
Acquiror's employees, consultants, officers, directors or shareholders that has
had knowledge or access to information relating to Acquiror's business has
taken, removed or made use of any proprietary documentation, manuals, products,
materials, or any other tangible item from his or her previous employer relating
to its business by such previous employer which has resulted in Acquiror's
access to or use of such proprietary items and Acquiror will not gain access to
or make use of any such proprietary items in its business.
(b) To the knowledge of Acquiror, except for the
Confidentiality Agreements, there are no written contracts of employment between
Acquiror and any employee.
(c) Acquiror is not a party to a collective bargaining
agreement with any trade union, Acquiror's employees are not members of a trade
union certified as a bargaining agent with Acquiror, no proceedings to implement
any such collective bargaining agreement or certifications are pending and
Acquiror knows of no effort to organize any such employee as a part of any
collective bargaining unit. There is no strike or other labor dispute involving
Acquiror pending, or to the best of Acquiror's knowledge, threatened, nor is
Acquiror aware of any labor organization activity involving its employees.
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5.31 BROKERS. Neither Acquiror nor any of its officers, directors or
employees has employed any broker or finder or incurred any liability for any
brokerage fee, commission or finder's fee in connection with the transactions
contemplated by this Agreement.
5.32 SIGNIFICANT CUSTOMERS AND SUPPLIERS. No customer or supplier that
was material to Acquiror during the period covered by the Acquiror Financial
Statements or that has been material to Acquiror thereafter, has terminated,
materially reduced or threatened to terminate or materially reduce its purchases
from, or provision of products or services to, Acquiror, as the case may be.
5.33 FIELD TEST UNITS. Certain of Acquiror's 31 kilowatt field test
units have been started for test purposes, and are operable.
6. COVENANTS OF TRANSFEROR.
6.1 ACCESS TO INFORMATION.
(a) Prior and subsequent to the Closing, Transferor will
permit Acquiror to make a full and complete investigation of the Acquired Assets
and to receive from Transferor all information of Transferor relating to the
Acquired Assets or reasonably related to Transferor's conduct of the Business.
Without limiting this right, Transferor will give to Acquiror and its
accountants, legal counsel, and other representatives full access, during normal
business hours, at a mutually agreeable location arranged in advance, to all of
the books, records, files, documents, properties, and contracts of Transferor
relating to the Acquired Assets or reasonably related to Transferor's conduct of
the Business and allow Acquiror and any such representatives to make copies
thereof, all of which shall be made available in an organized fashion and so as
to facilitate an orderly review. This Section 6.1 shall not affect or be deemed
to modify any representation or warranty contained herein or the conditions to
the obligations of the parties to consummate the transactions contemplated by
this Agreement. Transferor shall maintain and make available the information and
records specified in this Section 6.1(a) in the ordinary course of Transferor's
business and document retention policies, as if the transactions contemplated by
this Agreement had not occurred.
(b) At all times following the Closing, each party shall
provide the other party (at such other party's expense) with such reasonable
assistance, including the provision of available relevant records or other
information and reasonable access to and cooperation of any employees, as may be
reasonably requested by either of them in connection with the preparation of any
financial statement or tax return, any audit or examination by any taxing
authority, or any judicial or administrative proceeding relating to liability
for taxes.
6.2 REASONABLE EFFORTS. The Transferor shall use its commercially
reasonable efforts (i) to cause to be fulfilled and satisfied all of the
conditions to the Closing set forth in Section 10 below, (ii) to cause to be
performed all of the matters required of it at the Closing and (iii) to cause
the Contracts to be assigned to Acquiror.
6.3 TRANSFEROR'S CONDUCT OF THE BUSINESS PRIOR TO CLOSING. During the
period from the date of this Agreement to the Closing Date, Transferor will use
all reasonable efforts to preserve intact all rights, privileges, franchises and
other authority of the Business, to retain the
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employees, and to maintain favorable relationships with licensors, licensees,
suppliers, contractors, distributors, customers, and others having relationships
with the Business. Transferor shall promptly notify Acquiror of any event or
occurrence or emergency not in the ordinary course of business, and any material
event involving the Business or the Acquired Assets. Except as set forth in
Schedule 6.3, without limiting the generality of the foregoing, and except as
approved in writing by Acquiror in advance, which approval shall not be
unreasonably withheld, prior to the Closing, Transferor:
(a) will not create, incur or assume (i) any borrowings under
capital leases, or (ii) any obligation which would in any material way affect
the Business, the Acquired Assets or Acquiror's ability to conduct the Business
in substantially the same manner and condition as conducted by Transferor on the
date of this Agreement;
(b) will not change in any material manner the compensation
of, or agree to provide additional benefits to, or enter into any employment
agreement with, any employee except in the normal course of business consistent
with past practice;
(c) will maintain insurance coverage in amounts adequate to
cover the reasonably anticipated risks of the business conducted with the
Acquired Assets;
(d) will not acquire or agree to acquire by merging or
consolidating with, or by purchasing any assets or equity securities of, or by
any other manner, any business or any corporation, partnership, association or
other business organization or division thereof, or otherwise acquire or agree
to acquire any assets which are material, individually or in the aggregate, to
the Business;
(e) will not sell, dispose of or encumber any of the Acquired
Assets or license any Acquired Assets to any Person, other than the sale of C-1
units currently included in Transferor's Inventories but only if such units have
been modified to become C-3 units meeting the criteria set forth on Schedule
2.7(a)(vii); provided, that any proceeds from such sale shall be immediately
applied to Transferor's Trade Payables or included in the Acquired Assets to be
transferred to Acquiror pursuant to this Agreement;
(f) will not engage in any special promotion that promotes the
sale of Inventories with highly discounted terms;
(g) will not enter into any agreements or commitments relating
to the Business, including any agreement relating to the acquisition of
additional Inventories, except on commercially reasonable terms in the ordinary
course of business of the Business;
(h) will comply in all material respects with all laws and
regulations applicable to the Business;
(i) will not enter into any agreement with any third party for
the distribution of any of the Acquired Assets;
(j) will use reasonable efforts to assist Acquiror in
employing after the Closing Date those employees to whom offers of employment
are made by Acquiror, and will not (and
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will cause its Affiliates not to) solicit such employees to remain in the employ
of Transferor or any of its Affiliates after the Closing Date;
(k) will not change or announce any change to the products or
services sold by the Business except with Acquiror's written consent or at
Acquiror's request;
(l) will not materially violate or materially amend or change
in any way adverse to Transferor the terms of any of the Contracts;
(m) will not assign, sell or otherwise convey to any third
party, without obtaining Acquiror's prior written consent, any of its accounts
receivable prior to the Closing Date;
(n) will (i) recover any Inventories or other assets related
to Transferor's agreement with CPC, including those located in Troy, Michigan;
(ii) recover any Inventories or other assets located in Midland, Texas; (iii)
recover any Inventories or other assets located in La Jolla, California; and
(iv) deliver all of such Inventories and assets to Transferor's facilities in
Odessa, Texas within 30 days of Closing.
6.4 NO OTHER BIDS.
(a) Transferor, its affiliates and their respective officers,
directors, employees, representatives and agents shall immediately cease any
discussions or negotiations with any parties with respect to any Third Party
Acquisition (defined below). Neither Transferor nor any of its affiliates shall,
nor shall Transferor authorize or permit any of its or their respective
officers, directors, employees, representatives or agents to, directly or
indirectly, encourage, solicit, or initiate discussions or negotiations with or
provide any non-public information to any person or group (other than Acquiror
or any designee of Acquiror) concerning any Third Party Acquisition. Transferor
shall promptly notify Acquiror in the event it receives any proposal or inquiry
concerning a Third Party Acquisition, including the terms and conditions thereof
and the identity of the party submitting such proposal; and shall advise
Acquiror from time to time of the status and any material developments
concerning the same.
(b) Except as set forth in this Section 6.4(b), Transferor's
board of directors (the "Transferor Board") shall not withdraw its
recommendation of the transactions contemplated hereby or approve or recommend,
or cause Transferor to enter into any agreement with respect to, any Third Party
Acquisition. Notwithstanding the foregoing, if the Transferor Board by a
majority vote determines in its good faith judgment, after consultation with
counsel reasonably acceptable to Acquiror (which may be Proskauer Rose LLP or
Lionel Sawyer & Collins), that it is required to do so in order to comply with
its fiduciary duties, the Transferor Board may withdraw its recommendation of
the transactions contemplated hereby or approve or recommend a Superior Proposal
(defined below), but in each case only (i) after providing reasonable written
notice to Acquiror (a "Notice of Superior Proposal"), advising Acquiror that the
Transferor Board has received a Superior Proposal, specifying the material terms
and conditions of such Superior Proposal and identifying the person making such
Superior Proposal; and (ii) if Acquiror does not, within three (3) business days
of Acquiror's receipt of the Notice of Superior Proposal, make an offer that the
Transferor Board by a majority vote determines in its good faith judgment (based
on the advice of a financial adviser reasonably acceptable to Acquiror which may
be
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Valuation Associates) to be at least as favorable to Transferor's shareholders
as such Superior Proposal; provided, however, that Transferor shall not be
entitled to enter into any agreement with respect to a Superior Proposal unless
and until this Agreement is terminated by its terms pursuant to Section 13.1.
Any disclosure that the Transferor Board may be compelled to make with respect
to the receipt of a proposal for a Third Party Acquisition or otherwise in order
to comply with its fiduciary duties will not constitute a violation of this
Agreement provided that such disclosure states that no action will be taken by
the Transferor Board in violation of this Section 6.4(b).
(c) For the purposes of this Agreement, "Third Party
Acquisition" means the occurrence of any of the following events: (i) the
acquisition of Transferor by merger or otherwise by any Person other than
Acquiror or any affiliate thereof (a "Third Party"); (ii) the acquisition by a
Third Party of any material portion of the assets of Transferor and its
subsidiaries taken as a whole, other than the sale of its products in the
ordinary course of business consistent with past practices; (iii) the
acquisition by a Third Party of fifty percent (50%) or more of the outstanding
shares of Transferor; (iv) the adoption by Transferor of a plan of liquidation
(other than the Plan of Reorganization attached hereto Schedule 6.8) or the
declaration or payment of an extraordinary dividend; (v) the repurchase by
Transferor or any of its subsidiaries of more than ten percent (10%) of its
outstanding shares; or (vi) the acquisition by Transferor or any of its
subsidiaries by merger, purchase of stock or assets, joint venture or otherwise
of a direct or indirect ownership interest or investment in any business whose
annual revenues, net income or assets is equal or greater than ten percent (10%)
of the annual revenues, net income or assets of Transferor. For purposes of this
Agreement, a "Superior Proposal" means any bona fide proposal for a Third Party
Acquisition on terms that the Transferor Board by a majority vote determines in
its good faith judgment (after consultation with a financial advisor reasonably
acceptable to Acquiror which may be Valuation Associates) to be more favorable
to Transferor's shareholders than the Acquisition.
6.5 TAX RETURNS. Transferor shall, to the extent that failure to do so
could adversely affect the Business or the Acquired Assets following Closing,
(a) continue to file in a timely manner all returns and reports relating to
Taxes, and such returns and reports shall be true, correct and complete, and (b)
be responsible for and pay when due any and all Taxes.
6.6 POST-CLOSING ACCESS TO INFORMATION. If, after the Closing Date, in
order properly to operate the Business or prepare documents or reports required
to be filed with governmental authorities or Acquiror's financial statements, it
is necessary that Acquiror obtain additional information within Transferor's
possession relating to the Acquired Assets or the Business, Transferor will
furnish or cause its representatives to furnish such information to Acquiror.
Such information shall include, without limitation, all agreements between
Transferor and any Person relating to the Business. Transferor shall maintain
and make available the information and records specified in this Section 6.6
until the Transferor and the Liquidating Trust dissolves, at which time
Transferor and the Liquidating Trust shall transfer its books and records to
Acquiror.
6.7 POST-CLOSING COOPERATION. Transferor agrees that, if reasonably
requested by Acquiror, it (and if applicable, the Liquidating Trust) will
cooperate with Acquiror, at Acquiror's expense, in enforcing the terms of any
agreements between Transferor and any third party involving the Business,
including without limitation terms relating to confidentiality and the
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protection of intellectual property rights. In the event that Acquiror is unable
to enforce its intellectual property rights against a third party as a result of
a rule or law barring enforcement of such rights by a transferee of such rights,
Transferor agrees to reasonably cooperate with Acquiror by assigning to Acquiror
such rights as may be required by Acquiror to enforce its intellectual property
rights in its own name. If such assignment still does not permit Acquiror to
enforce its intellectual property rights against the third party, Transferor (or
if applicable, the Liquidating Trust) agrees to initiate proceedings against
such third party in Transferor's name, provided that Acquiror shall be entitled
to participate in such proceedings and provided further that Acquiror shall be
responsible for the expenses of such proceedings.
6.8 POST-CLOSING ACTIONS.
(a) Subsequent to the Closing Date, Transferor shall, from
time to time, execute and deliver, upon the request of Acquiror, all such other
and further materials and documents and instruments of conveyance, transfer or
assignment as may reasonably be requested by Acquiror to effect, record or
verify the transfer to, and vesting in Acquiror, of Transferor's right, title
and interest in and to the Acquired Assets, free and clear of all Liens, in
accordance with the terms of this Agreement.
(b) Following the Closing, Transferor will, consistent with
Transferor's Plan of Reorganization attached hereto as Schedule 6.8(b), apply
the cash portion of the Acquisition Consideration received under this Agreement,
other than amounts held in escrow, to the payment of all of its existing
liabilities and future liabilities promptly as they come due.
(c) Following the Closing, Transferor, consistent with
Transferor's Plan of Reorganization, shall not distribute any shares of the
Common Stock to its shareholders until the earlier of the consummation of
Acquiror's initial public offering or the date two years following the Closing
Date; provided, however, that Transferor may transfer such shares to a
Liquidating Trust (the "Liquidating Trust"), each in compliance with federal and
state securities laws; and provided further, that if in the reasonable opinion
of Acquiror, the Fairness Approval (as defined in Section 8.7) issued by the
Commissioner of the California Department of Corporations in connection with the
Fairness Hearing provides an adequate exemption from registration of such shares
under federal and state securities laws, Transferor may distribute such shares
to its shareholders on the day immediately preceding the last date on which such
distribution would be exempt from registration under the Securities Act on the
basis of the Fairness Approval issued by the Commissioner. In the event the
Fairness Approval does not provide a basis for an exemption from registration of
the distribution of such shares under federal and state securities laws, upon
such distribution from the Liquidating Trust, Acquiror shall register, at
Acquiror's expense, the distribution of such shares pursuant to a registration
statement under the Act and under applicable state securities laws. In addition,
Transferor hereby agrees that its founders, officers, directors or shareholders
owning a percentage of shares of the Acquiror specified by the managing
underwriter, will not, without the prior written consent of the managing
underwriter, during the period commencing on the date of the final prospectus
relating to Acquiror's initial public offering and ending on the date specified
by Acquiror and the managing underwriter (provided that such period shall not
exceed the lesser of (A) the lock-up period applicable to Acquiror's directors,
officers and affiliates and (B) one hundred eighty (l80) days) (i) lend, offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or
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contract to sell, grant any option, right or warrant to purchase, or otherwise
transfer or dispose of, directly or indirectly, any shares of common stock of
Acquiror or any securities convertible into or exercisable or exchangeable for
common stock of Acquiror (whether such shares or any such securities are then
owned by Transferor or are thereafter acquired), or (ii) enter into any swap or
other arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of the common stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of common stock or such other securities, in cash or otherwise. The underwriters
in connection with Acquiror's initial public offering are intended third party
beneficiaries of this Section 6.8(c) and shall have the right, power and
authority to enforce the provisions hereof as though they were a party hereto.
In order to enforce the foregoing covenant, Acquiror may impose stop-transfer
instructions with respect to the Securities of Transferor (and the shares or
securities of every other person subject to the foregoing restriction) until the
end of such period. Notwithstanding anything in this Agreement to the contrary,
Acquiror's obligation to register the shares under the Act pursuant to this
Section 6.8(c) shall survive for a period equal to the earlier of the
consummation of Acquiror's initial public offering or the date two years
following the Closing Date.
(d) Transferor hereby agrees that (i) Transferor's
shareholders' beneficial interests in the Liquidating Trust will not be
represented by certificates and will not be transferable, except by death,
intestate succession or operation of law, (ii) the beneficial interests in the
Liquidating Trust will be non-voting and Transferor's shareholders will have no
voting rights with respect to the Acquiror Common Stock held in such Liquidating
Trust, (iii) the Liquidating Trust will not engage in any trade or business and
the sole purpose of the Liquidating Trust will be to liquidate and distribute
Transferor's assets transferred to such Liquidating Trust, and (iv) Transferor
will provide to the Liquidating Trust periodic reports, for distribution to the
beneficiaries of such Liquidating Trust.
6.9 PERMITS. Transferor will assist Acquiror in obtaining any licenses,
permits or authorizations required for carrying on the Business but which are
not transferable.
6.10 BULK SALES LAW. Transferor and Acquiror hereby waive compliance
with the "bulk sales" provisions of Article 6 of the Uniform Commercial Code as
it is in effect in the states where Transferor owns assets to be acquired by
Acquiror pursuant to the terms hereof and Transferor shall indemnify Acquiror
with respect to any noncompliance by Transferor with such bulk sales provisions.
6.11 TAXES. Transferor shall be responsible for paying, shall promptly
discharge when due, and shall reimburse, indemnify and hold harmless Acquiror
from, any sales or use, transfer, real property gains, excise, stamp, or other
similar Taxes arising from, imposed on or attributable to the transactions
contemplated by this Agreement.
6.12 CUSTOMER DUE DILIGENCE. During the period between the date of
execution of this Agreement and the Closing Date, Transferor agrees to provide
contact information to Acquiror and allow Acquiror to contact on mutually
agreeable terms Wal-Mart, Apache and Albertson's, to make due diligence
inquiries regarding their respective relationships with Transferor.
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6.13 INTELLECTUAL PROPERTY. Transferor agrees to enter into agreements
in forms satisfactory to Acquiror with Terry Kell to assign to Transferor any
Intellectual Property developed or owned by Mr. Kell and related to the
Business, and agrees further to deliver to Acquiror copies of such agreements
prior to the Closing.
6.14 AUDITORS' CONSENTS. Transferor agrees to use its commercially
reasonable efforts to ensure that Arthur Andersen provides Acquiror with any
consents required to be filed by Acquiror with the SEC.
6.15 NON-DISTURBANCE AND ATTORNMENT. Transferor agrees that it shall
use its best commercial efforts to obtain prior to Closing for the benefit of
and delivered to Acquiror a Non-Disturbance and Attornment Agreement from all of
the lenders currently holding a mortgage lien on the Transferor's leased
property located in Odessa, Texas on I-20, pursuant to which such lender agrees
that in the event of a foreclosure of the landlord's interest to the property,
the lender (or any purchaser at the foreclosure sale) agrees to recognize and
not to disturb the rights of the tenant (Acquiror) in accordance with the lease
terms.
7. COVENANTS OF ACQUIROR.
7.1 ACCESS TO INFORMATION.
(a) Prior and subsequent to the Closing, Acquiror will permit
Transferor to make a full and complete investigation of its business assets and
to receive from Acquiror all information of Acquiror reasonably related to its
business. Without limiting this right, Acquiror will give to Transferor and its
accountants, legal counsel, and other representatives full access, during normal
business hours, at a mutually agreeable location arranged in advance, to all of
the books, records, files, documents, properties, and contracts of Acquiror
reasonably related to Acquiror's conduct of its business and allow Transferor
and any such representatives to make copies thereof, all of which shall be made
available in an organized fashion and so as to facilitate an orderly review.
This Section 7.1 shall not affect or be deemed to modify any representation or
warranty contained herein or the conditions to the obligations of the parties to
consummate the transactions contemplated by this Agreement. Acquiror shall
maintain and make available the information and records specified in this
Section 7.1(a) in the ordinary course of Acquiror's business and document
retention policies, as if the transactions contemplated by this Agreement had
not occurred.
(b) At all times following the Closing, each party shall
provide the other party (at such other party's expense) with such reasonable
assistance, including the provision of available relevant records or other
information and reasonable access to and cooperation of any employees, as may be
reasonably requested by either of them in connection with the preparation of any
financial statement or tax return, any audit or examination by any taxing
authority, or any judicial or administrative proceeding relating to liability
for Taxes.
7.2 REASONABLE EFFORTS. The Acquiror shall use its commercially
reasonable efforts (i) to cause to be fulfilled and satisfied all of the
conditions to the Closing set forth in Section 11 below and (ii) to cause to be
performed all of the matters required of it at the Closing.
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7.3 ACQUIROR'S CONDUCT OF ITS BUSINESS PRIOR TO CLOSING. During the
period from the date of this Agreement to the Closing Date, Acquiror will use
all reasonable efforts to preserve intact all rights, privileges, franchises and
other authority of its business, to retain the employees, and to maintain
favorable relationships with licensors, licensees, suppliers, contractors,
distributors, customers, and others having relationships with the Business.
Acquiror shall promptly notify Transferor of any event or occurrence or
emergency not in the ordinary course of business, and any material event
involving its business. Except as set forth on Schedule 7.3 hereto, without
limiting the generality of the foregoing, and except as approved in writing by
Transferor in advance, which approval shall not be unreasonably withheld, prior
to the Closing, Acquiror:
(a) will not create, incur or assume (i) any borrowings under
capital leases, or (ii) any obligation which would in any material way affect
its business or its ability to conduct its business in substantially the same
manner and condition as conducted by it on the date of this Agreement;
(b) will maintain insurance coverage in amounts adequate to
cover the reasonably anticipated risks of its business;
(c) will not acquire or agree to acquire by merging or
consolidating with, or by purchasing any assets or equity securities of, or by
any other manner, any business or any corporation, partnership, association or
other business organization or division thereof, or otherwise acquire or agree
to acquire any assets which are material, individually or in the aggregate, to
its business.
(d) will comply in all material respects with all laws and
regulations applicable to its business;
(e) will not commence a lawsuit related to or involving its
assets other than (i) for the routine collection of bills; (ii) for injunctive
relief on the grounds that Acquiror has suffered immediate and irreparable harm
not compensable in money damages, provided that Acquiror has obtained the prior
written consent of Transferor, such consent not to be unreasonably withheld; or
(iii) for a breach of this Agreement;
(f) will not assign, sell or otherwise convey to any third
party, without obtaining Transferor's prior written consent, any of its accounts
receivable prior to the Closing Date;
(g) will not (i) issue (except for the options to be issued
pursuant to Section 2.5(b) on the date of this Agreement, up to 200,000
additional options, and up to 200,000 shares of its common stock) or commit to
issue any shares of its capital stock or any other securities or any securities
convertible into shares of its capital stock or any other securities, including,
without limitation, any options to acquire capital stock or (ii) declare, pay or
incur any obligation to pay any dividend on its capital stock or declare, make
or incur any obligation to make any distribution or redemption with respect to
capital stock; and
(h) will not change its business or its operations in any
material manner.
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7.4 TAX RETURNS. Acquiror shall, following Closing, (a) continue to
file in a timely manner all required returns and reports relating to taxes, and
such returns and reports shall be true, correct and complete, and (b) be
responsible for and pay when due any and all taxes.
7.5 NON-INTERFERENCE. Prior to Closing, Acquiror shall not contact,
solicit or otherwise communicate or meet with any current or prospective client
of Transferor for the purpose of discussing Transferor's Business without
obtaining Transferor's prior consent.
7.6 REORGANIZATION COVENANTS. In order to enable Transferor's counsel
to render an opinion as to qualification of the Acquisition as a reorganization
within the meaning of Section 368(a) of the Code, Acquiror shall furnish to such
counsel an executed certificate in the form of Exhibit D hereto at such times as
counsel shall request.
7.7 CAT LP LICENSE. Acquiror shall use its commercially reasonable
efforts to achieve all performance milestones required under its License
Agreement with CAT LP and to maintain exclusivity under such license.
8. OTHER AGREEMENTS.
8.1 THIRD PARTY CONSENTS. Transferor and Acquiror shall use
commercially reasonable efforts to obtain, within the applicable time periods
required, all Required Consents, waivers, permits, consents and approvals and to
effect all registrations, filings and notices with or to third parties or
Governmental Entities which are necessary to consummate the transactions
contemplated by this Agreement so as to preserve all rights of, and benefits to,
the Acquiror in the Acquired Assets.
8.2 CERTAIN NOTIFICATIONS. At all times prior to the Closing,
Transferor and Acquiror shall promptly notify the other party in writing of the
occurrence of any event which will result, or has a reasonable prospect of
resulting, in the failure to satisfy any of the conditions specified in Section
10 or Section 11 of this Agreement.
8.3 CONFIDENTIALITY. Each of the parties hereto agrees that it will not
use, or permit the use of, any of the information relating to the Business or
Acquiror respectively furnished to each other in connection with this Agreement
or the Acquisition ("Confidential Information"), except publicly available or
freely usable material as otherwise obtained from another source, in a manner or
for a purpose detrimental to the Business or Acquiror or otherwise than in
connection with this Agreement and the transactions contemplated hereby. Neither
of the parties hereto will, and the Transferor will cause the Business, and each
of Transferor and Acquiror, respectively, shall cause its officers, employees,
agents and representatives not to, disclose, divulge, provide or make accessible
any of the Confidential Information to any person or entity, other than their
respective officers, employees, advisors or attorneys who are advised of this
provision or otherwise as required by law or regulation. The provisions of this
Section 8.3 and the following Section 8.4 are in addition to, and shall not
supersede, the Mutual Nondisclosure Agreement, dated January 31, 2001 between
Acquiror and Transferor.
8.4 PUBLIC ANNOUNCEMENTS. Without the prior written consent of the
other party hereto, neither party hereto will, and each party hereto will cause
its directors, officers, employees, agents, other representatives and affiliates
not to, disclose to any person the fact that discussions
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or negotiations are taking place concerning the transactions contemplated
hereby, the status thereof, or the existence of this Agreement and the terms
thereof, unless in the opinion of such party disclosure is required to be made
under the Act or the Securities Exchange Act of 1934 (the "Exchange Act"), and
such disclosure is made after prior consultation with the other party. Neither
party will issue any public announcement concerning the transaction without the
approval of the other party, except as may be required by law. Acquiror hereby
consents to and approves (a) the filing and distribution by Transferor of an
information statement in connection with the registration under the Exchange Act
of it securities, (b) the distribution by Transferor to its shareholders of a
request to waive certain claims against Transferor, and (c) the distribution by
Transferor to its shareholders of information in support of a request to consent
to this Agreement and the transactions contemplated hereby; provided that
Transferor provides Acquiror the opportunity to review and suggest revisions to
such documents prior to their filing and distribution, and such revisions are
reasonably accepted by Transferor.
8.5 TRANSITION AGREEMENT. Transferor agrees to enter into a Transition
Agreement with Acquiror in the form attached hereto as Exhibit E.
8.6 RIGHT OF FIRST OFFER TO TRANSFEROR. Subject to the terms and
conditions specified in this Section 8.6, Acquiror hereby grants to Transferor
or any Qualified Shareholder of Transferor a right of first offer with respect
to sales by Acquiror of shares of its Preferred Stock in its next equity
financing (the "Next Preferred Stock"). For purposes of this Section 8.6,
"Qualified Shareholder" means any shareholder of Transferor which is an
"accredited investor" within the meaning of SEC Rule 501 of Regulation D, as
presently in effect.
If Acquiror proposes to offer shares of its Next Preferred Stock in its
next equity financing, Acquiror shall first make an offering of such Next
Preferred Stock to Transferor and any Qualified Shareholder in accordance with
the following provisions:
(a) Acquiror shall deliver a notice in accordance with Section
14.8 ("Notice") to Transferor stating (i) its bona fide intention to offer such
Next Preferred Stock, (ii) the number of such shares of Next Preferred Stock to
be offered, and (iii) the price and terms upon which it proposes to offer such
Next Preferred Stock.
(b) By written notification received by Acquiror within ten
(10) calendar days after receipt of the Notice, Transferor or any Qualified
Shareholder may elect to purchase or obtain, at the price and on the terms
specified in the Notice, in the aggregate up to that portion of such Next
Preferred Stock that equals the proportion that the number of shares of Common
Stock issued and held by Transferor bears to the total number of shares of
Common Stock of Acquiror then outstanding (assuming full conversion of all
outstanding convertible Preferred Stock).
(c) If all shares of Next Preferred Stock that Transferor and
its Qualified Shareholders are entitled to obtain pursuant to subsection 8.6(b)
hereof are not elected to be obtained as provided in subsection 8.6(b) hereof,
Acquiror may, during the ninety (90) day period following the expiration of the
period provided in subsection 8.6(b) hereof, offer the remaining unsubscribed
portion of such Next Preferred Stock to any person or persons at a price not
less than, and upon terms no more favorable to the offeree than those specified
in the Notice. If Acquiror does not enter into an agreement for the sale of the
Next Preferred Stock within such
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period, or if such agreement is not consummated within ninety (90) days of the
execution thereof, the right provided hereunder shall be deemed to be revived
and such shares of Next Preferred Stock shall not be offered unless first
reoffered to Transferor and its Qualified Shareholders in accordance herewith.
(d) Provided that any of the following transactions is
approved by the Board in accordance with the provisions of Acquiror's Restated
Certificate, the right of first offer in this Section 8.6 shall not be
applicable to (i) the issuance or sale of shares of Common Stock (or options
therefor) to employees, directors and consultants for the primary purpose of
soliciting or retaining their services, (ii) the issuance of securities pursuant
to a bona fide, firmly underwritten public offering of shares of Common Stock,
registered under the Act, (iii) the issuance of securities pursuant to the
conversion or exercise of convertible or exercisable securities, (iv) the
issuance of securities in connection with a bona fide business acquisition of or
by Acquiror, whether by merger, consolidation, sale of assets, sale or exchange
of stock or otherwise, or (v) the issuance of stock, warrants or other
securities or rights to persons or entities with which Acquiror has business
relationships.
(e) Notwithstanding anything to the contrary in this Section
8.6, such right of first offer shall only be available to Transferor and its
Qualified Shareholders to the extent such transaction complies with federal and
state securities laws and is exempt from registration under the Act.
8.7 FAIRNESS HEARING. Transferor and Acquiror shall each take all steps
necessary or desirable, utilize all commercially reasonable efforts and
cooperate with one another in every way to obtain as promptly as practicable the
approval of the Commissioner of the California Department of Corporations (the
"Commissioner") of the fairness (the "Fairness Approval") of the terms and
conditions of the issuance of the Acquiror Common Stock as contemplated by this
Agreement after a hearing held pursuant to Section 25142 of the California
Corporations Code (the "Fairness Hearing") and the rules of the Commissioner
thereunder. Transferor shall promptly notify Acquiror if Transferor becomes
aware that one of its shareholders intends to dissent or object to the
Acquisition and the transactions contemplated hereby at such hearing.
9. EMPLOYEE MATTERS.
9.1 TRANSFERRED EMPLOYEES.
(a) OFFER OF EMPLOYMENT. Subject to and in accordance with the
provisions of this Section 9, Acquiror may offer employment to any or all of the
employees who are employed by Transferor in the Business as of the date of this
Agreement (the "Employees"). Transferor agrees that it will cooperate with
Acquiror to identify those employees of Transferor who are necessary for the
conduct the Business. Prior to the Closing, Acquiror, after notice to Transferor
as to the timing and method of contact, shall have the right to contact any or
all of the Employees for the purposes of making offers of employment with
Acquiror (or any Affiliate designated by Acquiror) after the Closing Date and
receiving written acceptances of such employment (in each case contingent on
consummation of the transactions contemplated by this Agreement). Upon Closing,
Acquiror (or any Affiliates designated by Acquiror) shall hire those Employees
to whom it has made an offer in accordance with this Section 9.1 and who accept
such offer in the
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manner and within the time frame reasonably established by Acquiror. Each such
Employee who is employed by Transferor on the Closing Date and who actually
transfers to employment with Acquiror (or any Affiliate designated by Acquiror)
at or after the Closing Date as a result of an offer of employment made by
Acquiror is hereafter referred to as a "Transferred Employee." Transferred
Employees shall not include any person on a disability leave of more than
twenty-six (26) weeks. On a periodic basis following the date of this Agreement
and prior to the Closing, Acquiror shall advise Transferor of its intentions
with respect to the employees it desires to extend or has extended offers to and
the general status of discussions with such employees. Notwithstanding such
periodic disclosures made to Transferor, Acquiror shall not be obligated to hire
any employee unless an offer of employment is subsequently made to, and accepted
by, such employee; in addition, Acquiror shall have no obligation to hire any
employees of Transferor after the Closing Date.
(b) TRANSITION. The employment by Transferor of the
Transferred Employees shall end at the close of business on the Closing Date and
the employment of the Transferred Employees by Acquiror shall commence at 12:01
a.m. on the day after the Closing Date. The terms of employment with Acquiror
(or Acquiror's Affiliates) shall be as mutually agreed to between each
Transferred Employee and Acquiror (or Acquiror's Affiliate, as the case may be),
subject to the provisions of this Section 9.1. Between the date of this
Agreement and the Closing Date, Transferor will provide each Transferred
Employee with the same level of compensation as that currently provided by
Transferor. Acquiror shall have no obligation with respect to payments of
salary, compensation, wages, health or similar benefits, commissions, bonuses
(deferred or otherwise), severance, stock or stock options or any other sums due
to any Transferred Employee that accrued before the Closing Date. Transferor
will be fully responsible for all amounts payable to any employee, including
(without limitation) all termination payments, redundancy compensation,
severance pay, accrued vacation pay and other amounts payable in respect of the
termination of employment of any employee in connection with the sale of the
Acquired Assets to the Acquiror. In addition, Transferor will be fully
responsible for all amounts owing to Transferred Employees prior to Closing.
(c) RETENTION OF EMPLOYEES PRIOR TO CLOSING. Transferor agrees
to use reasonable efforts to retain the Employees as employees of the Business
until the Closing Date, and to assist Acquiror in securing the employment after
the Closing Date of those Employees to whom Acquiror (or designated by Acquiror)
makes or intends to make offers of employment under subsection (a) above.
Transferor shall not transfer any Employee to employment with Transferor outside
of the Business prior to the Closing or without the consent of Acquiror.
Transferor shall notify Acquiror promptly if, notwithstanding the foregoing, any
Employee terminates employment with Transferor after the date of this Agreement
but prior to the Closing. Acquiror may request Transferor to hire additional
employees for the Business, in which case Transferor will use commercially
reasonable efforts to identify and hire such employees.
9.2 COMPENSATION AND BENEFITS OF TRANSFERRED EMPLOYEES. Coverage for
Transferred Employees under Acquiror's compensation and benefit plans (if any)
and other programs shall commence as of 12:01 a.m. on the day after the Closing
Date. Acquiror shall be free to establish its own employee benefit plans;
Acquiror shall have no obligation to offer benefit plans of the same type or
with terms similar to or better than the terms of Transferor's current employee
benefit plans. Acquiror may, at its option, give each Transferred Employee
credit for such
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Transferred Employee's years of most recent continuous service with Transferor
for purposes of determining participation and benefit levels under all of
Acquiror's vacation policies and benefit plans and programs.
9.3 OTHER EMPLOYEES OF THE BUSINESS. With respect to each employee of
the Business as of the Closing Date who is not a Transferred Employee (each a
"Non-Transferred Employee"), Transferor agrees to either terminate such
Non-Transferred Employee's employment with Transferor, effective prior to the
Closing, or offer such Non-Transferred Employee continued employment with
Transferor other than in the Business. Transferor further acknowledges that the
Non-Transferred Employees shall not be employees of Acquiror after the Closing.
9.4 NO RIGHT TO CONTINUED EMPLOYMENT OR BENEFITS. No provision in this
Agreement shall create any third party beneficiary or other right in any Person
(including any beneficiary or dependent thereof) for any reason, including,
without limitation, in respect of continued, resumed or new employment with
Transferor or Acquiror (or any Affiliate of Transferor or Acquiror) or in
respect of any benefits that may be provided, directly or indirectly, under any
plan or arrangement maintained by Transferor, Acquiror or any Affiliate of
Transferor or Acquiror. Except as otherwise expressly provided in this
Agreement, Acquiror is under no obligation to hire any employee of Transferor,
provide any employee with any particular benefits, or make any payments or
provide any benefits to those employees of Transferor whom Acquiror chooses not
to employ.
9.5 NO SOLICITATION OR HIRE BY TRANSFEROR. For a period of one year
after the Closing, Transferor will not solicit any Transferred Employee for
employment. For purposes of this Section 9.5, the term "solicit" shall not
include the following activities by Transferor: (i) advertising for employment
in any bulletin board (including electronic bulletin boards), newspaper, trade
journal or other publication available for general distribution to the public
without specific reference to any particular employees; (ii) participation in
any hiring fair or similar event open to the public not targeted at Acquiror's
employees; and (iii) use of recruiting or employee search firms that have been
instructed by Transferor not to target any Transferred Employee.
10. CONDITIONS TO ACQUIROR'S OBLIGATIONS.
The obligations of Acquiror under this Agreement are subject to the
fulfillment, prior to or on the Closing Date, of each of the following
conditions, all or any of which may be waived by Acquiror in writing, except as
otherwise provided by law:
10.1 REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE; CERTIFICATE.
(a) The representations and warranties of Transferor contained
in this Agreement shall be true and correct in all material respects as of the
Closing Date with the same effect as though such representations and warranties
had been made or given again at and as of the Closing Date (except for
representations and warranties made as of a certain date, which shall be true
and correct as of such date);
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(b) Transferor shall have performed and complied with all of
its agreements, covenants and conditions required by this Agreement to be
performed or complied with by them prior to or on the Closing Date;
(c) The conditions set forth in this Section 10 have been
fulfilled or satisfied, unless otherwise waived in writing by Acquiror; and
(d) Acquiror shall have received a certificate, dated as of
the Closing Date, signed and verified by an officer of Transferor on behalf of
Transferor certifying to the matters set forth in Sections 10.1(a) and 10.1(b)
above.
10.2 CONSENTS. All Governmental Authorizations, Required Consents and
consents required to transfer the Contracts to Acquiror on the terms and
conditions provided to Transferor, without change as a result of the transfer to
Acquiror, shall have been obtained.
10.3 NO PROCEEDINGS OR LITIGATION.
(a) No preliminary or permanent injunction or other order
shall have been issued by any Governmental Entity, nor shall any statute, rule,
regulation or executive order be promulgated or enacted by any Governmental
Entity which prevents the consummation of the transactions contemplated by this
Agreement.
(b) No suit, action, claim, proceeding or investigation before
any Governmental Entity shall have been commenced and be pending against any of
the parties, or any of their respective Affiliates, associates, officers or
directors, seeking to prevent transactions contemplated by this Agreement,
including, without limitation, the sale of the Acquired Assets or asserting that
the sale of the Acquired Assets would be illegal or create liability for damages
or which may have a Material Adverse Effect on the Business or the Acquired
Assets.
10.4 DOCUMENTS. This Agreement, the exhibits and schedules attached
hereto, and any other instruments of conveyance and transfer and all other
documents to be delivered by Transferor at the Closing and all actions of
Transferor required by this Agreement and the exhibit agreements, or incidental
thereto, and all related matters, shall be in form and substance reasonably
satisfactory to Acquiror and Acquiror's counsel and shall be in full force and
effect.
10.5 TITLE INSURANCE. Transferor shall have delivered to Ticor Title
Insurance Company (the "Title Company") original executed and acknowledged
Special Warranty Deeds (including the Special Warranty Deed from GJE Corporation
to Engine World, Inc. dated December 22, 1999) for the real estate fee
properties, and the Title Company is irrevocably committed to issue to Acquiror
an Owner's Policy of Title Insurance insuring fee title in Acquiror, free and
clear of all Liens. The cost of such Title Insurance shall be borne equally by
Transferor and Acquiror.
10.6 NON-DISTURBANCE AND ATTORNMENT. Transferor shall have used its
best commercial efforts to obtain for the benefit of and delivered to Acquiror a
Non-Disturbance and Attornment Agreement from all of the lenders currently
holding a mortgage lien on the Transferor's leased property located in Odessa,
Texas on I-20, pursuant to which such lender agrees that in the event of a
foreclosure of the landlord's interest to the property, the lender (or
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any purchaser at the foreclosure sale) agrees to recognize and not to disturb
the rights of the tenant (Acquiror) in accordance with the lease terms.
10.7 GOVERNMENTAL FILINGS. The parties shall have made any required
filing with Governmental Entities in connection with this Agreement and the
exhibit agreements, and any approvals related thereto shall have been obtained
or any applicable waiting periods shall have expired. If a proceeding or review
process by a Governmental Entity is pending in which a decision is expected,
Acquiror shall not be required to consummate the transactions contemplated by
this Agreement until such decision is reached or rendered, notwithstanding
Acquiror's legal ability to consummate the transactions contemplated by this
Agreement prior to such decision being reached or rendered.
10.8 NO MATERIAL ADVERSE CHANGE. There shall have been no material
adverse change in the financial condition or results of operations of the
Business on the Closing Date as compared with the date of this Agreement.
10.9 TERMINATION OF BENEFIT PLANS. Transferor shall have provided
Acquiror with evidence, reasonably satisfactory to Acquiror, as to the
termination of all benefit plans and payments owing by Transferor relating to
all Employees and the termination of all Non-Transferred Employees' benefit
plans.
10.10 SHAREHOLDER APPROVAL. This Agreement and the transactions it
contemplates shall have been approved and adopted by such vote of the holders of
the outstanding shares of Transferor's capital stock entitled to vote thereon as
is required to approve such transactions, and shall have otherwise been approved
as required by law and the charter documents of Transferor.
10.11 ESCROW AGREEMENT. Acquiror and Transferor shall have entered into
an Escrow Agreement in substantially the form attached hereto as Exhibit B, and
such agreement shall remain in full force and effect.
10.12 AUDITED FINANCIALS. Acquiror shall have received audited
financials statements of Transferor for the fiscal years ended December 31,
2000, 1999 and 1998 with an opinion from Arthur Andersen qualified only as to
Transferor's status as a going concern.
10.13 PROVISIONS FOR LIABILITIES. Transferor shall have made reasonable
provisions for the payment of all of its material liabilities when due.
10.14 CUSTOMER DILIGENCE. Acquiror shall have been permitted to contact
directly, pursuant to Section 6.12, and Acquiror shall be satisfied with the
results of any due diligence inquiries with respect to Transferor's
relationships with Wal-Mart, Apache and Albertson's.
10.15 INTELLECTUAL PROPERTY. Acquiror shall have received from
Transferor all executed documents relating to any Intellectual Property
developed or owned by Terry Kell relating to the Business, including the Amended
Independent Contractor Agreement in substantially the form attached hereto as
Exhibit F. Acquiror shall have received evidence reasonably satisfactory to
Acquiror that Transferor has filed with the United States Patent and Trademark
Office all documents necessary to cause any and all of Transferor's patents and
trademarks to be held in the name "Elektryon."
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10.16 SOLVENCY OPINION. Acquiror shall have received a solvency opinion
from Valuation Associates, dated as of the Closing Date, with respect to the
solvency of Transferor.
10.17 FAIRNESS APPROVAL. The Fairness Approval shall have been
obtained.
10.18 RELEASES. Transferor's Qualified Shareholders representing at
least 60% of the aggregate shares held by all Transferor shareholders shall have
executed a release of certain specified claims regarding any recission rights or
fraud with respect to such shares.
11. CONDITIONS TO TRANSFEROR'S OBLIGATIONS.
The obligations of Transferor under this Agreement are subject to the
fulfillment, prior to or on the Closing Date, of each of the following
conditions, all or any of which may be waived in writing by Transferor, except
as otherwise provided by law:
11.1 REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE.
(a) The representations and warranties of Acquiror contained
in this Agreement shall be true and correct in all material respects as of the
Closing Date with the same effect as though such representations and warranties
had been made or given again at and as of the Closing Date (except for
representations and warranties made as of a certain date, which shall be true
and correct as of such date);
(b) Acquiror shall have performed and complied with all of its
agreements, covenants and conditions required by this Agreement to be performed
or complied with by them prior to or on the Closing Date;
(c) Transferor shall have received a certificate, dated as of
the Closing Date, signed and verified by an officer of Acquiror on behalf of
Acquiror certifying to the matters set forth in Sections 11.1(a) and 11.1(b)
above.
11.2 NO PROCEEDING OR LITIGATION.
(a) No preliminary or permanent injunction or other order
shall have been issued by any Governmental Entity, nor shall any statute, rule,
regulation or executive order be promulgated or enacted by any Governmental
Entity which prevents the consummation of the transactions contemplated by this
Agreement.
(b) No suit, action, claim, proceeding or investigation before
any Governmental Entity shall have been commenced and be pending against any of
the parties, or any of their respective Affiliates, associates, officers or
directors, seeking to prevent the sale of the Acquired Assets or asserting that
the sale of the Assets would be illegal or create liability for damages.
11.3 DOCUMENTS. This Agreement, any other instruments of conveyance and
transfer and all other documents to be delivered by Acquiror to Transferor at
the Closing and all actions of Acquiror required by this Agreement or incidental
thereto, and all related matters, shall be in form and substance reasonably
satisfactory to Transferor and Transferor's counsel.
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11.4 GOVERNMENTAL FILINGS. The parties shall have made any filing
required with Governmental Entities, and any approvals shall have been obtained
or any applicable waiting periods shall have expired. If a proceeding or review
process by a Governmental Entity is pending in which a decision is expected,
Transferor shall not be required to consummate the transactions contemplated by
this Agreement until such decision is reached or rendered, notwithstanding
Transferor's legal ability to consummate the transactions contemplated by this
Agreement prior to such decision being reached or rendered.
11.5 NO MATERIAL ADVERSE CHANGE. There shall have been no material
adverse change in the financial condition or results of operations of the
business of Acquiror on the Closing Date as compared with the date of this
Agreement.
11.6 SHAREHOLDER APPROVAL. This Agreement and the transactions it
contemplates shall have been approved and adopted by such vote of the holders of
the outstanding shares of Acquiror's capital stock entitled to vote thereon as
is required to approve such transactions, and shall have otherwise been approved
as required by law and the charter documents of Acquiror.
11.7 ESCROW AGREEMENT. Acquiror and Transferor shall have entered into
an Escrow Agreement in substantially the form attached hereto as Exhibit B, and
such agreement shall remain in full force and effect.
11.8 BOARD OF DIRECTORS. The Board of Directors of Acquiror shall
consist of either (i) seven members, including two directors designated by
Transferor at Closing and agreed to by Acquiror, at, or shortly after, the
Closing or, in the alternative (at Transferor's option), (ii) nine members,
including three directors designated by Transferor at Closing and agreed to by
Acquiror, at, or shortly after, the Closing. Following the Closing, Acquiror's
Certificate of Incorporation shall provide that in the event there are seven
board members, a majority of each of the Series A Preferred, Series B Preferred,
Series C Preferred and Series D Preferred holders will be entitled to designate
one board member to represent each respective Series of Preferred Stock, a
majority of the holders of Acquiror's Common Stock will be entitled to designate
two board members, and a majority of the holders of Acquiror's Preferred Stock
and Common Stock, voting together, shall be entitled to designate one board
member. Alternatively, in the event there are nine board members, a majority of
each of the Series A Preferred, Series B Preferred, Series C Preferred and
Series D Preferred holders will be entitled to designate one board member to
represent each respective Series of Preferred Stock, a majority of the holders
of Acquiror's Common Stock will be entitled to designate three board members,
and a majority of the holders of Acquiror's Preferred Stock and Common Stock,
voting together, shall be entitled to designate two board members.
11.9 PROPRIETARY INFORMATION AGREEMENTS. Each employee of, and
consultant to, Acquiror shall have entered into a Proprietary Information and
Inventions Agreement in the form previously provided to counsel for Transferor.
11.10 RESTATED CERTIFIED, BYLAWS AND RESOLUTIONS. Restated Certificate
shall have been filed with the Delaware Secretary of State, and Transferor shall
have received a copy of the certificate of incorporation of Acquiror as restated
and a certificate of good standing, each certified by the Delaware Secretary of
State as of the date of the Closing, and a certificate of
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incumbency, a copy of the bylaws of Acquiror, and copies of the resolutions of
the Board of Directors of the Acquiror authorizing the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby and thereby, each certified by the Secretary of Acquiror as
of the Closing.
11.11 GRANT OF OPTIONS. Acquiror shall have issued to Michael Holmstrom
and Joanne Firstenberg options exercisable for shares of Common Stock of
Acquiror in the amounts and at the exercise prices set forth on Schedule 2.5(b)
and all outstanding options exercisable for shares of Transferor held by Mr.
Holmstrom and Ms. Firstenberg as of the Closing Date shall have been terminated.
11.12 SOLVENCY OPINION. Transferor shall have received a solvency
opinion from Valuation Associates, dated as of the Closing Date, with respect to
the solvency of Transferor.
12. ESCROW AND INDEMNIFICATION.
12.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All covenants to be
performed prior to the Closing Date, and all representations and warranties in
this Agreement or in any instrument delivered pursuant to this Agreement shall
survive the consummation of the transactions contemplated hereby and continue
until the earlier of (i) the one year anniversary of the Closing Date and (ii)
the closing of Acquiror's initial public offering (the "Survival Termination
Date"); provided that if any claims for indemnification have been asserted with
respect to any such representations, warranties and covenants prior to the
Survival Termination Date, the representations, warranties and covenants on
which any such claims are based shall continue in effect until final resolution
of any claims, and provided, further, that representations, warranties and
covenants relating to Taxes shall survive until the earlier of 30 days after
expiration of all applicable statutes of limitations relating to such Taxes or
the date on which the Transferor and any all related trusts of Transferor have
completed liquidation. All covenants to be performed after the Closing Date
shall continue indefinitely.
12.2 INDEMNIFICATION BY TRANSFEROR. (a) Subject to the limitations set
forth in this Section 12, from and after the Effective Time, Transferor shall
protect, defend, indemnify and hold harmless Acquiror, Acquiror's Affiliates,
and each of their respective officers, directors, employees, representatives and
agents (each of the foregoing Persons is hereinafter referred to individually as
an "Acquiror Indemnified Person" and collectively as "Acquiror Indemnified
Persons") from and against any and all losses, costs, damages, liabilities, fees
(including without limitation attorneys' fees) and expenses (collectively, the
"Damages"), that any of the Indemnified Persons incurs by reason of or in
connection with any claim, demand, action or cause of action alleging
misrepresentation, breach of, or default in connection with, any of the
representations, warranties, covenants or agreements of the Transferor contained
in this Agreement, including any exhibits or schedules attached hereto, known to
Acquiror prior to the Survival Termination Date.
(b) Notwithstanding the foregoing, Acquiror may not receive
any of the Stock Escrow unless and until a certificate signed by an officer of
Acquiror (a "Acquiror Officer's Certificate") (i) identifying Damages related to
an individual claim in excess of $50,000 and in an aggregate amount in excess of
$150,000 (the "Basket") and (ii) specifying in reasonable detail
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the individual items of Damages included in the amount so stated, the date each
such item was paid or incurred (or the basis for such anticipated liability),
and the nature of the misrepresentation, breach of warranty or claim to which
such item is related, has been delivered to the Escrow Agent and such amount is
determined pursuant to this Section 12 to be payable, in which case Acquiror
shall receive an amount of the Stock Escrow equal in value to the full amount of
any such Damages in excess of the Basket. In determining the amount of any
Damages attributable to a breach, any materiality standard contained in a
representation, warranty or covenant of Acquiror shall be disregarded. In no
event shall the amount of Damages required to be indemnified by Transferor under
the provisions of this Section 12.2 exceed $7.5 million.
12.3 INDEMNIFICATION BY ACQUIROR. (a) Subject to the limitations set
forth in this Section 12, from and after the Effective Time, Acquiror shall
protect, defend, indemnify and hold harmless Transferor, Transferor's
Affiliates, and each of their respective officers, directors, employees,
representatives and agents (each of the foregoing Persons is hereinafter
referred to individually as a "Transferor Indemnified Person" and collectively
as "Transferor Indemnified Persons") from and against any and all Damages, that
any of the Indemnified Persons incurs or reasonably anticipates incurring by
reason of or in connection with any claim, demand, action or cause of action
alleging misrepresentation, breach of, or default in connection with, any of the
representations, warranties, covenants or agreements of the Acquiror contained
in this Agreement, including any exhibits or schedules attached hereto, known to
Transferor prior to the Survival Termination Date.
(b) Notwithstanding the foregoing, Transferor may not receive
any compensation from Acquiror under this Section 12 unless and until a
certificate signed by an officer of Transferor (a "Transferor Officer's
Certificate") (i) identifying Damages related to an individual claim in excess
of $50,000 and in an aggregate amount in excess of $150,000 and (ii) specifying
in reasonable detail the individual items of Damages included in the amount so
stated, the date each such item was paid or incurred (or the basis for such
anticipated liability), and the nature of the misrepresentation, breach of
warranty or claim to which such item is related, has been delivered to Acquiror
and such amount is determined pursuant to this Section 12 to be payable, in
which case Transferor shall receive cash in an amount equal in value to the
dollar amount of such Damages in excess of the Basket. In determining the amount
of any Damages attributable to a breach, any materiality standard contained in a
representation, warranty or covenant of Acquiror shall be disregarded. In no
event shall the amount of Damages required to be indemnified by Acquiror under
the provisions of this Section 12.3 exceed $7.5 million.
12.4 ESCROW PERIOD. Subject to the following requirements, the Stock
Escrow retained by the Escrow Agent pursuant to the Escrow Agreement and Section
2.5(a)(ii) hereof shall be retained until the Survival Termination Date. Upon
the Survival Termination Date, the Escrow Agent shall deliver to Transferor all
remaining shares held in the Stock Escrow pursuant to Section 2.5(a)(ii)
provided, however, that the amount of shares held in the Stock Escrow portion of
the Escrow Account, which, in the reasonable judgment of Acquiror, subject to
the objection of the Escrow Agent and the subsequent arbitration of the claim in
the manner provided in the Escrow Agreement, is necessary to satisfy any
unsatisfied claims specified in any Acquiror's Officer's Certificate delivered
to the Escrow Agent prior to the Survival Termination Date with respect to facts
and circumstances existing on or prior to the Survival Termination
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Date shall remain in the possession of the Escrow Agent until such claims have
been resolved. As soon as all such claims have been resolved, any remaining
shares held in the Stock Escrow portion of the Escrow Account and not required
to satisfy such claims shall be distributed to Transferor.
12.5 METHOD OF ASSERTING CLAIMS. If a claim for indemnification
pursuant to Sections 12.2 or 12.3 (a "Claim") is to be made by a party entitled
to indemnification hereunder, the party claiming such indemnification (the
"Indemnified Party") shall give written notice (a "Claim Notice") to the other
party (the "Indemnifying Party") promptly after the Indemnified Party becomes
aware of any fact, condition or event which may give rise to Damages for which
indemnification may be sought under this Section 12.5. Provided notice is given
within the time period set forth in Section 12.1 above, the failure of any
Indemnified Party to give timely notice hereunder shall not affect rights to
indemnification hereunder, except and only to the extent that, the Indemnifying
Party demonstrates actual material damage caused by such failure, and then only
to the extent thereof. In the case of a Claim brought pursuant to Section 12.2
or 12.3 involving the assertion of a claim by a third party (whether pursuant to
a lawsuit, other legal action or otherwise, a "Third-Party Claim"), if the
Indemnifying Party shall acknowledge in writing to the Indemnified Party that
the Indemnifying Party shall be obligated to indemnify the Indemnified Party
under the terms of its indemnity hereunder in connection with such Third-Party
Claim, then (A) the Indemnifying Party shall be entitled and, if it so elects,
shall be obligated at its own cost, risk and expense, (1) to take control of the
defense and investigation of such Third-Party Claim and (2) to pursue the
defense thereof in good faith by appropriate actions or proceedings promptly
taken or instituted and diligently pursued, including, without limitation, to
employ and engage attorneys of its own choice reasonably acceptable to the
Indemnified Party to handle and defend the same, and (B) the Indemnifying Party
shall be entitled (but not obligated), if it so elects, to compromise or settle
such claim, which compromise or settlement shall be made only with the written
consent of the Indemnified Party, such consent not to be unreasonably withheld.
In the event the Indemnifying Party elects to assume control of the defense and
investigation of such lawsuit or other legal action in accordance with this
Section 12.5, the Indemnified Party may, at its own cost and expense,
participate in the investigation, trial and defense of such Third-Party Claim;
provided that, if the named persons to a lawsuit or other legal action include
both the Indemnifying Party and the Indemnified Party and the Indemnified Party
has been advised in writing by counsel that there may be one or more legal
defenses available to such Indemnified Party that are different from or
additional to those available to the Indemnifying Party, the Indemnified Party
shall be entitled, at the Indemnifying Party's cost, risk and expense, to retain
one firm of separate counsel of its own choosing. If the Indemnifying Party
fails to assume the defense of such Third-Party Claim in accordance with this
Section 12.5 within fifteen (15) calendar days after receipt of the Claim
Notice, the Indemnified Party against which such Third-Party Claim has been
asserted shall (upon delivering notice to such effect to the Indemnifying Party)
have the right to undertake, at the Indemnifying Party's cost, risk and expense,
the defense, compromise and settlement of such Third-Party Claim on behalf of
and for the account of the Indemnifying Party; provided that such Third-Party
Claim shall not be compromised or settled without the written consent of the
Indemnifying Party, which consent shall not be unreasonably withheld, unless (A)
there is no finding or admission of any violation of any law or any violation of
the rights of any Person and no effect on any other claims that may be made
against the indemnified party, and (B) the sole relief provided is monetary
damages that are paid in full by the Indemnifying Party. In the event the
Indemnifying Party
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assumes the defense of the claim, the Indemnifying Party shall keep the
Indemnified Party reasonably informed of the progress of any such defense,
compromise or settlement, and in the event the Indemnified Party assumes the
defense of the claim, the Indemnified Party shall keep the Indemnifying Party
reasonably informed of the progress of any such defense, compromise or
settlement. The Indemnifying Party shall be liable for any settlement of any
Third-Party Claim effected pursuant to and in accordance with this Section 12.5
and for any final judgment (subject to any right of appeal).
12.6 EXCLUSIVE REMEDY. The right of indemnity (together with the
limitations set forth in this Section 12) shall, in the absence of fraud, be the
sole and exclusive remedy of each of the parties hereto, the Acquiror
Indemnified Persons and the Transferor Indemnified Persons for damages and any
other remedy available at law in respect to any misrepresentation, breach of
misrepresentation or warranty, breach of covenant or any other matter by any
party under this Agreement. Notwithstanding anything in this Agreement to the
contrary, the right of indemnity shall not be the exclusive remedy and there
shall be no limitations (as to dollar amount or time in which to bring claim) on
Acquiror's right to collect Damages from Transferor for any claim arising out of
or related to the Excluded Liabilities.
13. TERMINATION.
13.1 TERMINATION OF AGREEMENT. This Agreement may be terminated at any
time prior to the Closing:
(a) By mutual written consent of Acquiror and Transferor;
(b) By Acquiror or Transferor if any Governmental Entity shall
have issued an order, decree or ruling or taken any other action restraining,
enjoining or otherwise prohibiting the transactions contemplated by this
Agreement;
(c) By Transferor if the Transferor Board has received a
Superior Proposal and has complied with the provisions of Section 6.4(b);
(d) By Acquiror if (i) the Transferor shall have breached any
of its covenants or agreements under Section 6.4(b) hereof or (ii) if the
Transferor Board shall have recommended to Transferor's shareholders a Superior
Proposal; or
(e) By either party if the Closing does not occur by June 30,
2001, other than due to a breach of this Agreement by the party seeking to
terminate.
13.2 PROCEDURE AND EFFECT OF TERMINATION. In the event of termination
of this Agreement by any or all of the parties pursuant to Section 13.1, written
notice shall be given to each other party specifying the provision of Section
13.1, pursuant to which such termination is made and shall become void and there
shall be no liability on the part of Acquiror or Transferor (or their respective
officers, directors, partners or Affiliates), except as a result of any breach
of this Agreement by such party or to the extent such a party is entitled to
indemnification under Section 12 of this Agreement. Each party hereto shall
return to the other party any documents or other information received in
connection with the negotiation of and due diligence related to this Agreement.
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14. MISCELLANEOUS.
14.1 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
or waived with the written consent of the parties or their respective successors
and assigns. Any amendment or waiver effected in accordance with this Section
14.1 shall be binding upon the parties and their respective successors and
assigns; provided, that the right of first offer set forth in Section 8.6 hereof
may be waived by Transferor (and shall not require any approval by the
shareholders of Transferor).
14.2 SUCCESSORS AND ASSIGNS. Neither this Agreement nor any of the
rights or obligations hereunder may be assigned by Transferor without the prior
written consent of Acquiror, or by Acquiror without the prior written consent of
Transferor.
14.3 CHOICE OF LAW. This Agreement shall be construed, interpreted and
the rights of the parties determined in accordance with the laws of the State of
New York, without giving effect to any choice of law provision or rule that
would cause the application of the laws of any jurisdiction other than the State
of New York.
14.4 CONSENT TO JURISDICTION. Each party to this agreement irrevocably
consents and agrees that any legal action, suit or proceeding against it with
respect to its obligations or liabilities under or arising out of or in
connection with this agreement shall be brought only in the united states
district court for the Southern District of New York or, in the event (but only
in the event) such court does not have subject matter jurisdiction over such
action, suit or proceeding, in the courts of the State of New York sitting in
the City of New York, and each party hereby (i) irrevocably accepts and submits
to the jurisdiction of each of the aforesaid courts in person, (ii)
irrevocably and unconditionally waives any objection to the laying of venue in
either of the aforesaid courts, and (iii) irrevocably and unconditionally waives
and agrees not to plead or claim that either of the aforesaid courts is an
inconvenient forum with respect to any such action, suit or proceeding
(including claims for interim relief, counterclaims, actions with multiple
defendants and actions in which such party is implied).
14.5 WAIVER OF JURY TRIAL. Consistent with the intention of Section
14.4, each signatory to this Agreement hereby waives its respective right to a
jury trial of any permitted claim or cause of action arising out of this
Agreement, any of the transactions contemplated hereby, or any dealings between
any of the signatories hereto relating to the subject matter of this Agreement
or any of the transactions contemplated hereby. The scope of this waiver is
intended to be all encompassing of any and all disputes that may be filed in any
court and that relate to the subject matter of this agreement or any of the
transactions contemplated hereby, including, without limitation, contract
claims, tort claims, and all other common law and statutory claims. This waiver
is irrevocable, meaning that it may not be modified either orally or in writing,
and this waiver shall apply to any subsequent amendments, supplements or other
modifications to this agreement, any of the transactions contemplated hereby or
to any other document or agreement relating to the transactions contemplated
hereby.
14.6 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
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14.7 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
14.8 NOTICES. Unless otherwise provided herein, any notice, request,
instruction or other document to be given hereunder by any party to the other
shall be in writing and delivered in person or by courier, sent by facsimile
transmission, sent via overnight delivery service or mailed by registered or
certified mail (such notice to be effective upon receipt), as follows:
If to Transferor:
Elektryon
6565 Spencer Street
Las Vegas, Nevada 89119
Attn: Joanne Firstenberg
General Counsel
fax: (702) 269-9770
With a copy to:
Proskauer Rose LLP
1585 Broadway
New York, New York 10036
Attn: Allan R. Williams, Esq.
fax: (212) 969-2900
If to Acquiror:
Solo Energy Corporation
2701 Monarch Street, Suite 210
Alameda, California 94501
Attn: Martin L. Lagod
President and CEO
fax: (510) 864-3041
With a copy to:
Orrick, Herrington & Sutcliffe LLP
Old Federal Reserve Bank
400 Sansome Street
San Francisco, California 94111-3143
Attn: Alan Talkington, Esq.
fax: (415) 773-5759
If to a Qualified Shareholder:
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c/o Elektryon
6565 Spencer Street
Las Vegas, Nevada 89119
Attn: Joanne Firstenberg
General Counsel
fax: (702) 269-9770
or to such other place and with such other copies as any party may designate as
to itself by written notice to the others.
14.9 SEVERABILITY. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, the parties agree to renegotiate such
provision in good faith, in order to maintain the economic position enjoyed by
each party as close as possible to that under the provision rendered
unenforceable. In the event that the parties cannot reach a mutually agreeable
and enforceable replacement for such provision, then (i) such provision shall be
excluded from this Agreement, (ii) the balance of the Agreement shall be
interpreted as if such provision were so excluded and (iii) the balance of the
Agreement shall be enforceable in accordance with its terms.
14.10 ENTIRE AGREEMENT. This Agreement and the documents referred to
herein are the product of both of the parties hereto, and constitute the entire
agreement between such parties pertaining to the subject matter hereof and
thereof, and merge all prior negotiations and drafts of the parties with regard
to the transactions contemplated herein and therein. Any and all other written
or oral agreements existing between the parties hereto regarding such
transactions are expressly canceled.
14.11 ADVICE OF LEGAL COUNSEL. Each party acknowledges and represents
that, in executing this Agreement, it has had the opportunity to seek advice as
to its legal rights from legal counsel and that the person signing on its behalf
has read and understood all of the terms and provisions of this Agreement. This
Agreement shall not be construed against any party by reason of the drafting or
preparation thereof.
14.12 FEES AND EXPENSES.
(a) Except as provided as specifically provided in this
Section 14.12, each of the parties hereto shall pay all of its expenses incident
to this Agreement and consummation of the transactions contemplated hereby.
Transferor and Acquiror each represent and warrant that there are no brokerage
or finder's fees which are or will be payable in connection with the
Acquisition. The costs and expenses related to the delivery of the fairness and
solvency opinions prepared by Valuation Associates shall be borne equally by
Acquiror and Transferor, unless this Agreement terminates prior to the Closing.
(b) Notwithstanding the foregoing, in the event that this
Agreement is terminated pursuant to Sections 13.1(c) or 13.1(d), Acquiror will
suffer direct and substantial damages, which damages cannot be determined with
reasonable certainty. To compensate Acquiror for such damages, and in
recognition of the time, efforts and expenses incurred by Acquiror with respect
to Transferor and the opportunity that the Acquisition represents to Acquiror,
Transferor
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shall pay to Acquiror the amount of Five Hundred Thousand Dollars ($500,000) as
liquidated damages immediately upon the occurrence of the event described in
this Section 14.12(b) giving rise to such damages. The fee payable pursuant to
this Section 14.12(b) as a result of a termination pursuant to Sections 13.1(c)
or 13.1(d) shall be paid within one business day after the first to occur of the
events described therein.
14.13 PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other person any
right, benefit or remedy or any nature whatsoever under or by reason of this
Agreement, including, without limitation by way of subrogation, other than
Section 12 (which is intended to be for the benefit of Indemnified Parties and
may be enforced by such Indemnified Parties) and Section 8.6 (which contains
provisions intended to be for the benefit of Qualified Shareholders and may be
enforced by such Qualified Shareholders).
[Signature pages follow]
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This Agreement has been duly executed and delivered by the duly
authorized officers of Transferor and Acquiror as of the date first above
written.
SOLO ENERGY CORPORATION
By: /s/ Brooks F. Tanner
____________________________________
Name: Brooks F. Tanner
__________________________________
Title: Chief Executive Officer
_________________________________
ELEKTRYON
By: /s/ Michael E. Holmstrom
____________________________________
Name: Michael E. Holmstrom
__________________________________
Title: President
_________________________________
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