EXHIBIT 10.1
EXECUTION COPY
MEMBERSHIP INTEREST PURCHASE AGREEMENT
TABLE OF CONTENTS
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ARTICLE 1 PURCHASE AND SALE OF MEMBERSHIP INTERESTS.....................................................1
1.1 Acquisition...................................................................................1
1.2 Assignment of Membership Interests............................................................1
ARTICLE 2 PURCHASE PRICE................................................................................1
2.1 Purchase Price................................................................................1
2.2 Warrants......................................................................................2
2.3 Transfer Taxes................................................................................2
2.4 Purchase Price Adjustments....................................................................2
2.5 Pro Rata Payments.............................................................................4
ARTICLE 3 SELLERS' REPRESENTATIONS AND WARRANTIES.......................................................4
3.1 Organization..................................................................................4
3.2 Power and Authority...........................................................................4
3.3 Authorization; No Breach......................................................................5
3.4 Absence of Undisclosed Liabilities............................................................5
3.5 Capitalization of the Company and Title to Membership Interests...............................6
3.6 Financial Statements..........................................................................6
3.7 No Material Adverse Changes; Absence of Certain Changes or Events.............................6
3.8 Real Property; Personal Property..............................................................8
3.9 Tax Matters..................................................................................10
3.10 Contracts and Commitments....................................................................11
3.11 Litigation; Proceedings......................................................................13
3.12 Brokerage....................................................................................14
3.13 Employees....................................................................................14
3.14 Employee Benefit Plans.......................................................................15
3.15 Compliance with Laws.........................................................................17
3.16 Environmental Matters........................................................................17
3.17 Affiliate Transactions.......................................................................18
3.18 Intellectual Property Rights.................................................................19
3.19 Bank Accounts; Powers of Attorney............................................................19
3.20 Fuel Volume Records..........................................................................19
3.21 Intentionally Omitted........................................................................19
3.22 Intentionally Omitted........................................................................19
3.23 Accuracy of Representations..................................................................19
3.24 Foreign Person...............................................................................19
3.25 Securities Law Compliance....................................................................20
ARTICLE 4 BUYER'S REPRESENTATIONS AND WARRANTIES.......................................................21
4.1 Organization.................................................................................21
4.2 Power and Authority..........................................................................21
4.3 Authorization; No Breach.....................................................................21
4.4 Brokerage....................................................................................21
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4.5 Litigation...................................................................................21
4.6 Buyer's Investment Representation............................................................21
4.7 Buyer's Securities Filings...................................................................22
ARTICLE 5 COVENANTS....................................................................................22
5.1 Pre-Closing Affirmative Covenants of Sellers.................................................22
5.2 Schedules....................................................................................23
5.3 Intentionally Omitted........................................................................23
5.4 Access.......................................................................................23
5.5 Pre-Closing Negative Covenants of Sellers....................................................23
5.6 Lot Split. .................................................................................25
ARTICLE 6 CLOSING CONDITIONS - BUYER...................................................................25
6.1 Buyer's Conditions to Closing................................................................25
6.2 Waiver of Conditions.........................................................................27
ARTICLE 7 CLOSING CONDITIONS - SELLERS.................................................................27
7.1 Conditions to Closing........................................................................27
7.2 Waiver of Conditions.........................................................................29
ARTICLE 8 CLOSING MATTERS..............................................................................29
8.1 The Closing..................................................................................29
8.2 Action to Be Taken at the Closing; Payment of Purchase Price.................................29
8.3 Closing Documents............................................................................29
ARTICLE 9 INDEMNIFICATION; SURVIVAL OF REPRESENTATIONS AND WARRANTIES; RELEASE.........................30
9.1 Indemnification of Buyer and the Company.....................................................30
9.2 Indemnification of Sellers...................................................................32
9.3 Certain Tax Matters..........................................................................32
9.4 Procedure....................................................................................33
9.5 Survival ....................................................................................36
9.6 Exclusive Remedy.............................................................................36
9.7 Indemnification Limitations..................................................................36
9.8 The Sellers' Representative..................................................................37
9.9 Release......................................................................................39
9.10 No Contribution..............................................................................40
ARTICLE 10 TERMINATION..................................................................................40
10.1 Termination..................................................................................40
10.2 Effect of Termination........................................................................40
ARTICLE 11 ADDITIONAL AGREEMENTS........................................................................40
11.1 Press Release and Announcements..............................................................40
11.2 Confidentiality by Buyer.....................................................................41
11.3 Remittances..................................................................................41
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11.4 Cooperation to Obtain Consents...............................................................41
11.5 Tax Matters..................................................................................41
11.6 Employee Matters.............................................................................42
11.7 Further Assurances...........................................................................42
11.8 Arbitration..................................................................................42
11.9 Confidentiality, Tradenames..................................................................44
11.10 SEC Reporting Cooperation....................................................................45
11.11 Legend; Transfer of Member Notes.............................................................45
11.12 No Shop. ".................................................................................46
ARTICLE 12 MISCELLANEOUS................................................................................46
12.1 Amendment and Waiver.........................................................................46
12.2 Notices......................................................................................47
12.3 Assignment...................................................................................47
12.4 Captions.....................................................................................48
12.5 Complete Agreement; Schedules and Exhibits...................................................48
12.6 Governing Law................................................................................48
12.7 Counterparts.................................................................................48
12.8 Third Party Beneficiaries....................................................................48
12.9 Severability.................................................................................48
12.10 Expenses.....................................................................................48
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INDEX OF DEFINITIONS
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OTHER THAN THOSE LIST ON EXHIBIT "A"
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Accounting Firm.................................................................................................3
Acquisition Proposal...........................................................................................46
Action.........................................................................................................43
Agreement.......................................................................................................1
Benefit Plans..................................................................................................15
Business........................................................................................................1
Business Employees.............................................................................................14
Buyer...........................................................................................................1
Buyer Securities................................................................................................2
Closing........................................................................................................28
Closing Balance Sheet...........................................................................................3
Closing Date...................................................................................................29
Company.........................................................................................................1
Company Intellectual Property..................................................................................18
Confidential Information.......................................................................................43
Decision.......................................................................................................43
Effective Time.................................................................................................29
Financial Statements............................................................................................6
Indemnifying Party.............................................................................................33
Insurance Policies.............................................................................................12
Interim Unaudited Statements....................................................................................6
JAMS...........................................................................................................42
Lease...........................................................................................................8
Leases..........................................................................................................8
Loss...........................................................................................................31
Material Contracts.............................................................................................12
Member Notes....................................................................................................2
Membership Interests............................................................................................1
MetLife Note....................................................................................................2
Milestone Date.................................................................................................29
Monthly Unaudited Statements....................................................................................6
Net Tax Benefit................................................................................................35
Net Working Capital.............................................................................................2
Notice.........................................................................................................33
Offset.........................................................................................................31
Offset Notice..................................................................................................31
Pension Plans..................................................................................................15
Permits........................................................................................................17
Personal Property...............................................................................................9
Primary Sellers................................................................................................32
Principals......................................................................................................4
Purchase Price..................................................................................................1
Seller..........................................................................................................1
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Sellers.........................................................................................................1
Sellers' Representative....................................................................................36, 37
Tax Matters....................................................................................................32
Tax Reimbursement Amount.......................................................................................35
To the Best of Sellers' Knowledge...............................................................................4
Transaction Documents..........................................................................................29
Unaudited Statements............................................................................................6
Warrants........................................................................................................2
Welfare Plans..................................................................................................15
Western Milling.................................................................................................2
Western Milling Loan............................................................................................2
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EXECUTION COPY
MEMBERSHIP INTEREST PURCHASE AGREEMENT
THIS MEMBERSHIP INTEREST PURCHASE AGREEMENT (together with the exhibits
and schedules hereto, this "AGREEMENT") is dated as of August 1, 2005 by and
among those persons and entities listed on the attached Schedule 1 (collectively
the "Sellers" or individually the "SELLER" and PACIFIC ETHANOL, INC., a Delaware
corporation ("BUYER"). Unless otherwise defined in this Agreement, capitalized
terms used in this Agreement are defined in EXHIBIT "A".
R E C I T A L S
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A. Sellers own 100% of the equity (the "MEMBERSHIP INTERESTS") of
Phoenix Bio Industries, LLC, a California limited liability Company (the
"COMPANY").
B. The Company is engaged in the business (the "BUSINESS") of
developing and constructing an approximate 25 million gallon per year corn
ethanol plant, providing management services to operate the corn ethanol plant
and such other activities related to the foregoing.
C. Buyer desires to acquire from Sellers, and Sellers desire to sell
and transfer to Buyer, all of the Membership Interests on the terms and subject
to the conditions set forth herein.
A G R E E M E N T
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THEREFORE, in consideration of the foregoing and the mutual agreements
and covenants set forth below, the Parties hereby agree as follows:
ARTICLE 1
PURCHASE AND SALE OF MEMBERSHIP INTERESTS
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1.1 ACQUISITION. Subject to the terms and conditions of this Agreement,
Buyer agrees to purchase, and Sellers agree to sell, convey, assign, transfer
and deliver to Buyer, the Membership Interests, free and clear of all
Encumbrances, on the Closing Date.
1.2 ASSIGNMENT OF MEMBERSHIP INTERESTS. The sale and transfer of the
Membership Interests will be effected by delivery by Sellers to Buyer of an
Assignment of Limited Liability Company Membership Interests in the form
attached hereto as EXHIBIT "B".
ARTICLE 2
PURCHASE PRICE
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2.1 PURCHASE PRICE. The aggregate amount to be paid by the Buyer at the
Closing in consideration for the Membership Interests shall be Forty-Seven
Million Five Hundred Thousand Dollars ($47,500,000.00) (the "PURCHASE PRICE").
Subject to SECTION 2.4(G) of this Agreement, the Purchase Price shall be payable
as follows:
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(a) $39,500,000 shall be payable at the time of the Closing in
the form of (i) the assumption by Buyer or payoff by Buyer of the
remaining balance of the MetLife Loan to the Company in the original
principal amount of $8,000,000 (the "METLIFE NOTE"); (ii) payment in
the form of wire transfer, check or bank draft in the amount of
$39,500,000 reduced by the amount of the MetLife Note assumed by or
paid off from Sellers' proceeds paid at the time of this Closing and
the outstanding balance of the loan made by Western Milling, LLC
("WESTERN MILLING") to the Company with a current principal amount
owing of approximately $1,000,000 (the "WESTERN MILLING LOAN") which
will be paid off from Seller's proceeds paid at the time of this
Closing.
(b) Buyer shall issue an aggregate of $8,000,000 of
convertible subordinated notes to the Sellers (the "MEMBER NOTES") in
the form attached hereto as EXHIBIT "C" which will be secured by a
subordinated security interest in the form of a deed of trust
encumbering the Facility and the ground lease upon which it is located
junior only to one or more deeds of trust securing an aggregate amount
not to exceed $37,500,000.
2.2 WARRANTS. As additional consideration for the acquisition of the
Membership Interests, Buyer shall issue at Closing warrants to the Sellers
("WARRANTS") in the form attached hereto as EXHIBIT "D". The Warrants and the
Member Notes are hereinafter collectively referred to as the "BUYER SECURITIES".
2.3 TRANSFER TAXES. All transfer, registration, stamp, documentary,
recording and similar taxes, if any, that become due and payable as a result of
the consummation of the transactions set forth in this Agreement shall be paid
one-half by the Buyer and one-half by the Sellers.
2.4 PURCHASE PRICE ADJUSTMENTS.
(a) As used herein, the term "NET WORKING CAPITAL" shall mean
the aggregate current assets of the Company minus the aggregate current
liabilities of the Company, all as determined in accordance with
generally accepted accounting principles, consistent with past practice
and all as determined as of the Effective Time and taking into account
such adjustments as customary for a working capital adjustment. Current
liabilities will not include any principal portion of the Met Life loan
or the Western Milling Loan.
(b) The Purchase Price shall be adjusted by the amount of the
Net Working Capital of the Company as of the Effective Time. The
Sellers' Representative and the Buyers shall use commercially
reasonable efforts to mutually agree upon the principles,
specifications and methodologies for determining Net Working Capital
consistent with past practice. In the event that the Parties cannot
mutually agree on the principles, specifications and methodologies for
determining Net Working Capital, on or before 5 business days prior to
the Closing, then the matter shall be submitted to binding arbitration
with a mutually agreed upon national independent certified public
accounting firm.
(c) At least ten (5) business days prior to Closing, Sellers
shall deliver to Buyer a reasonable estimate of Net Working Capital as
of the Effective Time based on a balance sheet as of the last day of
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the most recently ended calendar month prior to the Closing Date and
containing reasonable detail and supporting documents showing the
derivation of such estimate, including a projected balance sheet as of
the Effective Time (the "CLOSING BALANCE Sheet"). The consideration
paid by Buyer to the Sellers at the Closing shall be (x) increased by
the excess, if any, of Net Working Capital (above zero) as of the
Effective Time, or (y) decreased by the shortfall (below zero), if any,
of Net Working Capital as of the Effective Time, in either case as
reasonably agreed to by Buyer and the Sellers' Representative on or
prior to the Closing Date.
(d) Within ninety (90) days after the Closing, Buyer shall
deliver to the Sellers' Representative its determination of the actual
Net Working Capital as of the Effective Time (following the same
principles, specifications and methodologies used to determine the
estimated Net Working Capital as agreed upon pursuant to SECTION
2.3(B)). Each party shall have full access to the financial books and
records pertaining to the Company to confirm or audit the Net Working
Capital computations. Should the Sellers' Representative disagree with
Buyer's determination of Net Working Capital, the Sellers'
Representative shall notify Buyer within thirty (30) days after Buyer's
delivery of its determination of Net Working Capital. If the Sellers'
Representative and Buyer fail to agree within thirty (30) days after
Sellers' Representative's delivery of notice of disagreement on the
amount of Net Working Capital, such disagreement shall be resolved in
accordance with the procedure set forth in SECTION 2.3(F) which shall
be the sole and exclusive remedy for resolving such accounting disputes
relative to the determination of Net Working Capital.
(e) If the actual Net Working Capital as of the Effective Time
(determined pursuant to SECTION 2.3(D)) exceeds the estimated Net
Working Capital as of such time (determined pursuant to SECTION 2.3(C)
hereof), then Buyer shall, within fourteen (14) days pay such
difference in cash to the Sellers' Representative, and the Sellers'
Representative shall distribute the same to the Sellers in proportion
to their ownership interests in the Company. If the actual Net Working
Capital as of the Effective Time (determined pursuant to SECTION
2.3(D)) is less than the estimated Net Working Capital as of such time
(determined pursuant to SECTION 2.3(C) hereof), then the Buyer shall
reduce the difference from the subsequent payment(s) due on the Member
Notes.
(f) In the event that the Sellers' Representative and Buyer
are not able to agree on the actual Net Working Capital as of the
Effective Time within thirty (30) days after the Sellers'
Representative's delivery of notice of disagreement, the Sellers'
Representative and Buyer shall each have the right to require that such
disputed determination be submitted to a national independent certified
public accounting firm as the Sellers' Representative and Buyer may
then mutually agree upon in writing (the "ACCOUNTING FIRM") for
computation or verification in accordance with the provisions of this
Agreement. The Accounting Firm shall review the matters in dispute and
acting as arbitrators shall promptly decide the proper amounts of such
disputed entries (which decision shall also include a final calculation
of the actual Net Working Capital as of the Effective Time). The
submission of the disputed matter to the Accounting Firm shall be the
exclusive remedy for resolving accounting disputes relative to the
determination of Net Working Capital. The Accounting Firm's
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determination shall be binding upon the Sellers, the Sellers'
Representative and Buyer. The Accounting Firm's fees and expenses shall
be borne equally by the Sellers and Buyer.
(g) Any Purchase Price Adjustment required under this SECTION
2.3 shall be made to the cash portion of the Purchase Price which is
payable pursuant to SECTION 2.1 of this Agreement.
2.5 PRO RATA PAYMENTS. All payments due the Sellers under this Article
2 and the other provisions of this Agreement shall be made by the Buyer to the
Sellers according to Schedule 1 attached hereto. Schedule 1 may be adjusted up
to the Closing.
ARTICLE 3
SELLERS' REPRESENTATIONS AND WARRANTIES
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For the purposes of this Agreement, the phrase "TO THE BEST OF SELLERS'
KNOWLEDGE" shall mean (a) as to all the representations and warranties contained
in this ARTICLE 3 other than SECTIONS 3.2, 3,3(A), 3.5(A), 3.5(C) AND 3.25 to
the actual knowledge of Mark S. Wheeler, Kevin Kruse, Ejnar Knudsen and Rick
Eastman (collectively the "PRINCIPALS") and shall be deemed to exist with
respect to a particular matter if a prudent individual would be expected to
discover or otherwise become aware of it after reasonable inquiry; and (b) as to
the representations and warranties contained in SECTIONS 3.2, 3.3(A), 3.5(A),
3.5(C) AND 3.25 of this ARTICLE 3, to the actual knowledge of each Seller as
such representation or warranty relates to such Seller and shall be deemed to
exist with respect to a particular matter if a prudent individual would be
expected to discover or otherwise become aware of it after reasonable inquiry.
Subject to the foregoing and as an inducement to Buyer to enter into this
Agreement, Sellers represent and warrant to Buyer severally as to the
representations and warranties contained in SECTIONS 3.2, 3.3(A), 3.5(A), 3.5(C)
AND 3.25 and each of the Principals represents and warrants as to all other
representations and warranties in this Article 3 that:
3.1 ORGANIZATION. The Company is a limited liability company duly
organized, validly existing and in good standing under the Laws of California.
The Company has no Subsidiaries nor does it own any equity interest in any other
entity. The Company is qualified to do business as a foreign corporation in any
state in which it is doing business and is in good standing in the State of
California. The State of California is the only jurisdiction where the Company's
activities, personnel and properties require such qualification or licensing.
Sellers have provided to Buyer complete and correct copies of the Charter
Documents for the Company as currently in effect.
3.2 POWER AND AUTHORITY. Sellers have full power and authority to own
the Membership Interests, to execute and deliver this Agreement and the
Transaction Documents and to perform their respective obligations hereunder and
thereunder. Except as set forth in SCHEDULE 3.2, the Company has all requisite
power and authority to own and operate the Business as conducted as of the date
hereof, and to own, operate and lease the properties and assets owned, operated
or leased by the Company and used in the Business.
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3.3 AUTHORIZATION; NO BREACH.
(a) The execution, delivery and performance of this Agreement
has been, and the execution, delivery and performance of the
Transaction Documents as of the Closing will have been, duly and
validly authorized by Sellers, and this Agreement constitutes, and each
of the Transaction Documents as of the Closing will constitute, a valid
and binding obligation of Sellers, enforceable against Sellers in
accordance with their respective terms (except as may be limited by
bankruptcy, insolvency, reorganization and other similar laws and
equitable principles relating to or limiting creditors' rights
generally).
(b) The execution, delivery and performance of this Agreement
and the Transaction Documents by Sellers, and the consummation of the
transactions hereunder and thereunder, will not:
(i) violate, conflict with, result in a breach or
constitute a default, or give rise to any right of amendment,
termination, cancellation or acceleration, under (with or
without due notice or lapse of time, or both) the Company's
Charter Documents, or, To the Best of Sellers' Knowledge, any
Law to which Sellers or the Company are subject or, except as
set forth on SCHEDULE 3.3(A), any agreement to which the
Company is party or otherwise bound (including the Material
Contracts);
(ii) except as set forth on SCHEDULE 3.3(B), result
in or give to any person any right of termination or
cancellation in or with respect to any Permit; or
(iii) except as set forth on SCHEDULE 3.3(C), require
or potentially require any authorization, consent or approval
of, or action or filing with, any person, business
organization, entity or any court or other governmental body.
3.4 ABSENCE OF UNDISCLOSED LIABILITIES.
(a) Other than as disclosed on the Company's financial
statement dated June 30th 2005 and updated at Closing on SCHEDULE
3.4(A), the Company does not have any liabilities or obligations of any
nature, whether accrued or absolute, contingent or otherwise, and
whether due or to become due, except (i) liabilities and obligations
under contracts described on the Leases Schedule and the Contracts
Schedule (other than through any breach or default by the Company, (ii)
liabilities and obligations reflected in the Unaudited Statements, and
(iii) liabilities and obligations of the Company which have arisen
after June 30th 2005 in the ordinary course of business, consistent
with past practices (other than through any breach or default by the
Company).
(b) Except as set forth on SCHEDULE 3.4(B), the Company does
not have any Funded Indebtedness as of the date of this Agreement or on
the Closing Date.
3.5 CAPITALIZATION OF THE COMPANY AND TITLE TO MEMBERSHIP INTERESTS.
(a) Sellers are the unconditional and sole legal, beneficial,
record and equitable owners of the Membership Interests, and each has
full power and authority to sell and transfer the Membership Interests
free and clear of all Encumbrances. SCHEDULE 1 lists the name of each
Seller and the percentage of the Membership Interests each Seller owns
of record.
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(b) The Membership Interests constitute all of the issued and
outstanding equity in the Company. All such Membership Interests are
duly authorized, validly issued, fully paid and non-assessable and were
issued in conformity with applicable Laws.
(c) Except as set forth in Schedule 1, there are no
outstanding warrants, options, rights, other securities, agreements,
subscriptions, or other commitments, arrangements or undertakings
pursuant to which Sellers, the Company, or any other person is or may
become obligated to issue, deliver or sell, or cause to be issued,
delivered or sold, any additional membership interests or other
securities of the Company.
3.6 FINANCIAL STATEMENTS. The Company has delivered to Buyer, or, in
the case of the Interim and Monthly Unaudited Statements, will deliver to Buyer
prior to Closing, correct and complete copies of (a) unaudited financial
statements with respect to the Company and the Business prepared by the Company
for the year ended December 31, 2004 and December 31, 2003 (the "UNAUDITED
STATEMENTS"), (b) unaudited statements of income and cash flow for the Company
for the six (6) month period ending June 30, 2004 (the " INTERIM UNAUDITED
STATEMENTS") and each month-end that occurs prior to the Closing Date (the
"Monthly UNAUDITED STATEMENTS"). The Unaudited Statements, the Interim Unaudited
Statements and the Monthly Unaudited Statements are hereinafter collectively
referred to as the "FINANCIAL STATEMENTS". The Financial Statements have been
(and, with respect to the Monthly Unaudited Statements, will be) prepared in
accordance with the books and records of the Company and consistently applied
throughout the periods involved, and fairly present the financial condition and
results of operation of the Company and the Business as of such balance sheet
date or the period then ending, as the case may be. Except as set forth on
SCHEDULE 3.6, each of the Company's accounts receivable arose, and all accounts
receivable that will be outstanding as of the Closing Date shall have arisen,
from bona fide transactions in the ordinary course of business. The reserves for
accounts receivables set forth in the Financial Statements have been established
consistently with the Company's historical accounting practices. SCHEDULE 3.6
includes an accurate list, as of a date not more than five (5) business days
prior to the date hereof, of the Company's accounts receivable, showing amounts
due in 30-day aging categories.
3.7 NO MATERIAL ADVERSE CHANGES; ABSENCE OF CERTAIN CHANGES OR EVENTS.
Since June 30th, 2005, except as set forth in SCHEDULE 3.7 or as contemplated or
permitted hereunder, (i) there has not been any Material Adverse Change, (ii)
the Business has only been operated in the ordinary course, consistent with past
practices, and (iii) there has not been, with respect to the Company, any:
(a) sale, assignment or transfer, other than in the ordinary
course of business and consistent with past practice, of any assets of
the Company;
(b) acquisition by merger, consolidation with, purchase of
substantially all of the assets or capital stock of, or, other than in
the ordinary course of business and consistent with past practice, any
other acquisition of any material assets of, any corporation,
partnership, association or other business organization or division
thereof;
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(c) change in accounting methods or accounting practices by
the Company other than what is required to facilitate the Company's
transition from construction to operating;
(d) termination or, other than in the ordinary course of
business and consistent with past practice, entry into, or amendment or
modification of, any Material Contract, Permit or material transaction
(including, without limitation, any borrowing, capital expenditure,
capital contribution, capital financing or factoring agreement);
(e) increase in salary, bonuses or other compensation payable
or to become payable to, or any advance or loan to any officer or
employee of the Company, except in the ordinary course of business,
consistent with past practice, and the Company has not (i) entered into
any Benefit Plan, employment, severance, or other agreements relating
to compensation or fringe benefits or (ii) adopted or changed any
existing Benefit Plan or Benefit Arrangement;
(f) strike, walkout, labor trouble or, To the Best of Sellers'
Knowledge, any other new or continued labor-related event, development
or condition of any character which has or could materially adversely
affect the Business;
(g) cancellation or waiver of any right material to the
operation of the Business or any cancellation or waiver of any debts or
claims of substantial value or any cancellation or waiver of any debts
or claims against any officer, manager or employee of the Company;
(h) payment, discharge or satisfaction of any material
liability or obligation (whether accrued, absolute, contingent or
otherwise), other than the payment, discharge or satisfaction of
liabilities and obligations under contracts described in the Leases
Schedule and the Contracts Schedule, in accordance with the terms of
such contracts, and other than the payment, discharge or satisfaction,
in the ordinary course of business, of liabilities or obligations shown
or reflected on the Financial Statements or incurred in the ordinary
course of business since June 30th, 2005;
(i) To the Best of Sellers' Knowledge, change or changes in
relations with landlords, suppliers, clients or customers which,
individually or in the aggregate, could reasonably be expected to
result in a Material Adverse Change;
(j) write-offs as uncollectible of any notes or accounts
receivable of the Company or write-downs of the value of any asset or
inventory by the Company other than in immaterial amounts or in the
ordinary course of business consistent with past practice;
(k) creation, incurrence, assumption or guarantee by the
Company of any material obligations or liabilities (whether absolute,
accrued, contingent or otherwise and whether due or to become due),
except in the ordinary course of business, or any creation, incurrence,
assumption or guarantee by the Company of any indebtedness for borrowed
money; or
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(l) agreement by the Company to do any of the foregoing.
3.8 REAL PROPERTY; PERSONAL PROPERTY.
(a) The Leases Schedule, SCHEDULE 3.8(A), lists all oral or
written leases, including the Ground Lease, subleases, licenses,
concession agreements or other use or occupancy agreements pursuant to
which the Company leases to or from any other party any real property,
including all renewals, extensions, modifications or supplements to any
of the foregoing or substitutions for any of the foregoing (each a
"LEASE" and collectively, the "LEASES"). The Leases are in full force
and effect, have not been assigned, modified, supplemented or amended,
and are enforceable by and against the Company and, To the Best of
Sellers' Knowledge, all other parties thereto. Sellers have delivered
to Buyer complete and accurate copies of each of the Leases (including
all amendments and supplements thereto and, To the Best of Sellers'
Knowledge, all material correspondence related thereto). Copies of the
Ground Lease are attached to SCHEDULE 3.8(A) hereto. Except as set
forth on SCHEDULE 3.8(A), (i) none of Sellers, nor the Company has
received any notice that the Company is in default under, or not in
compliance with any material provision of, any Lease, that the Company
may be subject to any special assessments or that there may be any
material changes in property Tax or land use law affecting any such
Leases, (ii) none of the Sellers or the Company has delivered any
notice to another party alleging any default under, or failure to
comply with any material provision of any Lease, and (iii) no event has
occurred that, with notice, the passage of time or both would
constitute a material default by the Company under, or failure of the
Company to comply with a material provision of, any of the Leases, or,
To the Best of Sellers' Knowledge, otherwise give any party a right of
termination or material modification thereof.
(b) The Company's interests under the Leases are held free and
clear of all Encumbrances other than as set forth on SCHEDULE 3.8(B).
There are no mortgages, security interests or liens granted with
respect to the Ground Lease other than as set forth on SCHEDULE 3.8(B).
The Company does not own any fee interest in any real property. The
Company has no leasehold rights in any other real property.
(i) None of Sellers nor the Company has received
written notice of any threatened condemnation proceedings,
lawsuits or administrative actions relating to any of the real
property used in the Business, or any other matters which do
and may have a material adverse effect on the current use or
occupancy thereof, and there are no pending or, To the Best of
Sellers' Knowledge, there are no pending or threatened
condemnation proceedings, lawsuits or administrative actions
relating to any of the real property used in the Business or
any other matters which do or may have a material adverse
effect on the current use and occupancy thereof.
-8-
(ii) All facilities, buildings, improvements and
other structures located on the real property used in the
Business and all present uses and operations of such real
property and the structures by the Company, comply in all
material respects To the Best of Sellers' Knowledge with all
applicable zoning, land-use, building, fire, labor, safety,
subdivision and other governmental requirements and all deed
or other title covenants or restrictions applicable thereto.
None of Sellers nor the Company has received any notice that
any of the leased real property or any of the structures used
in the Business, or the use, occupancy or operation thereof by
the Company, violate any governmental requirements or deed or
other title, covenants or restrictions, except for any
violations which do not have a material adverse effect.
(iii) By Closing, the Company will have obtained all
material approvals of governmental authorities (including
certificates of use and occupancy, licenses and permits)
required in connection with the construction, ownership, use,
occupation and operation of the leased real property and the
structures thereon used in the Business, and all equipment
owned or used by the Company. To the Best of Sellers'
Knowledge, none of the leased real property or any of the
structures thereon used in the Business are dependent upon or
benefit from any "non-conforming use" or similar zoning
classification.
(iv) Other than in the ordinary course of business or
as may be provided in any Lease or Material Contract, there
are no parties other than the Company in possession of any of
the leased real property or any portion thereof, and, except
as may be provided in any Lease or Material Contract or
otherwise in the ordinary course of business, there are no
leases, subleases, licenses, concessions or other agreements,
written or oral, granting to any party or parties the right of
use or occupancy of any of the leased real property or any
portion thereof.
(v) To the Best of the Sellers' Knowledge, all
structural, mechanical and other physical systems related to
the leased real property are in operating condition and repair
at Closing, reasonable wear and tear excepted, in all material
respects.
(c) Attached hereto as SCHEDULE 3.8(C) is a complete and
accurate list of all furniture, equipment, leasehold improvements,
motor vehicles and all other tangible personal property owned or leased
by the Company that the Company has reflected in its books and records
in accordance with generally accepted accounting principles (the
"PERSONAL PROPERTY").
(d) The Company has good title to its Personal Property, free
and clear of any Encumbrances except as set forth on SCHEDULE 3.8(D).
(e) The Personal Property has been maintained, repaired and
replaced in the ordinary course of business consistent with past
practices, and is in operating order except for ordinary wear and tear.
-9-
The Company owns or leases all assets and properties that are used in
or necessary to the operation of the Business it is currently
conducted.
(f) At Closing, the Company's inventory consists of items of a
quality and quantity usable and salable in the ordinary course of
business.
3.9 TAX MATTERS. Except as set forth on SCHEDULE 3.9:
(a) The Company has filed (or had filed on its behalf), all
Tax Returns required to have been filed by it. The Company has duly
paid (or had paid on its behalf) all Taxes required to have been paid
by it. With respect to the Company, no claim has ever been made by a
governmental authority in a jurisdiction where the Company does not
file Tax Returns that the Company is or may be subject to taxation by
that jurisdiction. The Company has not requested or obtained any
extension of time within which to file any Tax Return, which Tax Return
has not since been filed. There are no Liens on any of the assets of
the Company that arose in connection with any failure (or alleged
failure) to pay any Tax.
(b) The Company has complied in all material respects with all
applicable laws, rules and regulations relating to withholding Taxes,
and has, within the time and manner prescribed by law, withheld and
paid, when due (or if withheld but not yet due, have made adequate
reserves in the Unaudited Statements with for) all Taxes from payments
made to its employees, agents, and contractors as required by Law.
(c) To the Best of Sellers' Knowledge, there is no proceeding
or audit pending or threatened by any governmental authority with
respect to any Taxes or Tax Returns of the Company. To the Best of
Sellers' Knowledge, there are no existing circumstances which, if known
to governmental authorities, reasonably may be expected to result in
the assertion of any claim for Taxes against the Company by any
governmental authority with respect to any period for which Tax Returns
have been filed or Tax is required to have been paid by or with respect
to the Company.
(d) The Company (or any Affiliate of the Company, with respect
to the Company) has not received a written ruling from a governmental
authority relating to any Tax or entered into a written agreement with
a governmental authority relating to any Tax that could have a
continuing effect with respect to any taxable period for which such
Company has not filed a Tax Return.
(e) The Company (or any Affiliate of the foregoing with
respect to the Company) has not waived any statute of limitations with
respect to any Tax or Tax Return or agreed to any extension of time
with respect to a Tax assessment or deficiency, which has continuing
effect.
(f) The Company is not nor has it been a party to any Tax
allocation, Tax sharing or similar agreement or arrangement, has been
member of a group of entities required to file Tax Returns on a
combined, consolidated or unitary basis, or has any liability for Taxes
owing by any other person, including, without limitation, by contract
or as a transferee or successor of such other person by merger or
otherwise.
-10-
(g) No property of the Company is property that the Company or
any party to this transaction is or will be required to treat as being
owned by another person pursuant to the provisions of Section 168(f)(8)
of the Code (as in effect prior to its amendment by the Tax Reform Act
of 1986) or is "tax-exempt use property" within the meaning of Section
168 of the Code.
(h) The Sellers have provided to the Buyer complete and
accurate copies of all of the following materials: (i) all income Tax
Returns of the Company, (ii) all examination reports of the Company
relating to Taxes, (iii) all statements of Taxes assessed against or
agreed to by the Company, (iv) all written rulings the Company (or any
Affiliate of the foregoing with respect to the Company) received from
any governmental authority relating to any Tax, and (v) all written
agreements entered into by or on behalf of the Company with any
governmental authority relating to any Tax. SCHEDULE 3.9 identifies all
Tax Returns that the Company has filed and the taxable period covered
by each such Tax Return, and identifies those Tax Returns or periods
that have been audited or are currently the subject of an audit by a
governmental authority.
(i) Since the date of its formation, for federal income Tax
purposes, the Company has properly been treated as a partnership
pursuant to Treas. Reg. Section 301.7701-3(b)(1)(i).
3.10 CONTRACTS AND COMMITMENTS.
(a) Except as set forth in the Contracts Schedule, SCHEDULE
3.10, the Company is not a party to any contract or agreement, written
or oral:
(i) for a bonus, pension, profit sharing, retirement,
deferred compensation, medical or life insurance plan,
membership purchase or option or any other plans or
arrangements providing for benefits of any type to employees
(either current or former) of the Company;
(ii) for collective bargaining or with any labor
union;
(iii) for the borrowing of money or mortgaging,
pledging or encumbering any of the Company's assets;
(iv) for the lending or investing of funds to or in
other persons or entities;
(v) granting any power of attorney (irrevocable or
otherwise) to any person for any purpose relating to the
Business or the Company's assets, other than powers of
attorney given to regulatory authorities in connection with
routine qualifications to do business; or
(vi) with an Affiliate of any of Sellers or the
Company (other than the Company's Charter Documents).
-11-
(b) The Contracts Schedule lists each of the Material
Contracts. For purposes of this Agreement, "MATERIAL CONTRACTS"
includes the following:
(i) any and all contracts for the sale of goods or
services by the Company with a value in excess of $25,000
individually or $100,000 in the aggregate, or which is not
terminable without penalty by or on behalf of the Company on
less than ninety (90) days notice;
(ii) any and all contracts, agreements, licenses,
leases (other than the Leases), sales and purchase orders and
other legally binding commitments that obligate the Company to
pay, assume, guaranty or secure an amount of $25,000 or more
individually or $100,000 or more in the aggregate or that
cannot be terminated without penalty by or on behalf of the
Company on less than ninety (90) days notice;
(iii) any and all contracts between the Company on
the one hand and any Affiliate of the Company on the other
hand (other than the Company's Charter Documents);
(iv) any and all broker, distributor, dealer,
representative or agency agreements;
(v) any and all insurance policies insuring the
Business, the Facility or any of the Company's respective
assets (collectively, the "INSURANCE POLICIES");'
(vi) any and all employment, non-competition or
consulting agreement that is currently in effect;
(vii) each contract containing covenants purporting
to materially limit the freedom of the Company to compete in
any line of business or in any geographic area;
(viii) any factoring agreements;
(ix) each partnership, joint venture or other similar
agreement or arrangement to which the Company is a party; and
(x) any and all agreements requiring a loan, advance
or guaranty of any Funded Indebtedness by the Company.
(c) Sellers have delivered to Buyer true and complete copies
of all written Material Contracts, together with all amendments and
supplements thereto. A description of the principal terms and
conditions of each oral Material Contract, if any, is set forth on the
Contracts Schedule. The Material Contracts are in full force and effect
and are enforceable against the Company, as applicable, and To the Best
of Sellers' Knowledge all other parties thereto. Except as set forth on
the Contracts Schedule, (i) none of Sellers, nor the Company has
received any notice that it is in default under, or not in compliance
with any material provision of, any Material Contract, (ii) none of
Sellers nor the Company has delivered any notice to another party
-12-
alleging any default under, or failure to comply with any material
provision of, any Material Contract, and (iii) with respect to the
Material Contracts, no event has occurred that, with notice, the
passage of time or both would constitute (A) a default by the Company,
or (B) a failure of the Company to comply with a material provision of
any of the Material Contracts, or (C) To the Best of Sellers'
Knowledge, otherwise give any party a right of termination or
modification thereof. Except as set forth on SCHEDULE 3.10(C), To the
Best of Seller's Knowledge, the consummation of the transactions
contemplated by this Agreement would not give any party to a Material
Contract the right to terminate or cancel the terms of such Material
Contract.
(d) Set forth on SCHEDULE 3.10(D) is a list of the twenty-five
(25) largest customers of the Company by gallons of fuel purchased in
the Company's most recent 12-month period. Other than the customers set
forth on SCHEDULE 3.10(D), no other customer accounted for more than
five percent (5%) of the gallons of fuel purchased by customers of the
Company in such 12-month period. None of Sellers nor the Company has
received any notice from any of the customers listed on SCHEDULE
3.10(D) that such customer intends to cease or reduce its buying of
goods or services from the Company.
(e) Except as disclosed on SCHEDULE 3.10(E), none of Sellers
nor the Company has received any notice from any material supplier to
or landlord of the Company that such material supplier or landlord
intends to terminate or materially alter its business relationship with
the Company.
(f) None of the Sellers nor the Company has failed to give any
notice or present any reasonably available claim under any of the
Insurance Policies in a timely fashion or in the manner or detail
required by the policy. None of the Insurance Policies is subject to
any retroactive rate or audit adjustments or coinsurance arrangements.
None of the Sellers nor the Company has received any notice of
cancellation, non-renewal or material premium increase with respect to
any Insurance Policy.
(g) The Company neither directly or indirectly, has any (i)
interest in the outstanding stock or ownership interests of any
corporation or in any partnership, joint venture or other entity, or
(ii) agreement, understanding, contract or commitment relating to an
interest in any such entity.
3.11 LITIGATION; PROCEEDINGS. Except as set forth in SCHEDULE 3.11,
none of the Sellers nor the Company has received notice of service of process
regarding or, To the Best of Sellers' Knowledge, otherwise been named as a party
to any pending action, suit, proceeding, judgment, order or governmental
investigation, and, To the Best of Sellers' Knowledge, no action, suit,
proceeding or governmental investigation has been threatened against the Company
before any federal, state, municipal or other governmental court or agency. The
Company is not subject to or in violation of any judgment, decree, injunction or
order.
3.12 BROKERAGE. No agent, broker, finder, or investment or commercial
banker engaged by or on behalf of Sellers or the Company is or will be entitled
to any brokerage commission, finders' fees or similar compensation as a result
of this Agreement or any of the transactions contemplated herein.
-13-
3.13 EMPLOYEES.
(a) SCHEDULE 3.13(A)(I) contains a complete and correct list
of all employees of the Company, their respective titles as of the date
hereof (the "BUSINESS EMPLOYEES"), the common law employer of the
employee, the 2005 compensation (excluding transaction bonuses) paid or
payable to each such employee, the date and amount of each such
employee's most recent salary increase, the date of employment of each
such employee and the accrued vacation time and sick leave or other
paid time off of each such employee. Except as set forth on SCHEDULE
3.13(A)(II), (i) the terms of employment or engagement of all officers
and Business Employees are such that their employment or engagement may
be terminated at will with notice given at any time and without
liability for payment of compensation or damages, (ii) there are no
severance payments which are or could become payable by the Company to
any such person under the terms of any oral or written agreement or
commitment or any Law, custom, trade or practice, (iii) there are no
other agreements, contracts or commitments, oral or written, between
the Company and any such person, (iv) as of the date hereof, except as
set forth on SCHEDULE 3.13(A)(III), To the Best of Sellers' Knowledge,
no management level Business Employee has provided notice that he or
she intends to terminate his or her employment or relationship with the
Company, (v) To the Best of Sellers' Knowledge, there are no agreements
between any Business Employee and any other Person which would
restrict, in any manner, such Person's ability to perform services, for
the Company, the Buyer, or any of their Affiliates or, in connection
with the operation of the Business, or the right of any of them to
compete with any Person.
(b) Except as disclosed in SCHEDULE 3.13(B), the Company is
not and has not ever been, bound by or subject to (and none of their
respective assets or properties are bound by or subject to) any
arrangement with any labor union or other collective bargaining
representative. No employee of the Company has ever been represented by
any labor union while employed by the Company or covered by any
collective bargaining agreement while employed by the Company and no
campaign to establish such representation is in progress. With respect
to the Company, there is no pending or, To the Best of Sellers'
Knowledge, threatened (i) strike, slowdown, picketing, work stoppage or
employee grievance process, (ii) material charge, grievance proceeding
or other claim against or affecting the Company relating to the alleged
violation of any law pertaining to labor relations or employment
matters, or (iii) application for certification of a collective
bargaining agent.
(c) As of the date hereof, the Company does not employ or
otherwise engage any independent contractors, consultants or agents
except as outlined on SCHEDULE 3.13(C); and the Company does not have
any liability arising out of the employment or engagement of any
independent contractors, consultants or agents.
-14-
(d) SCHEDULE 3.13(D) lists all of the Business Employees who
are currently on leave relating to work-related injuries and/or
receiving disability benefits under any Benefit Plan.
(e) Except as set forth in SCHEDULE 3.13(E), no Company
employee plan provides, or reflects or represents any liability to
provide retiree health benefits to any person for any reason, except as
may be required by COBRA or other applicable statute, and the Company
has never represented, promised or contracted (whether in oral or
written form) to any employee (either individually or to employees as a
group) or any other person that such employees) or other person would
be provided with retiree health benefits, except to the extent required
by statute.
(f) To the Best of the Sellers' Knowledge, the Company has
not, prior to the Closing and in any material respect, violated any of
the health care continuation requirements of COBRA, the requirements of
FMLA, the requirements of the Health Insurance Portability and
Accountability Act of 1996, the requirements of the Women's Health and
Cancer Rights Act of 1998, the requirements of the Newborns' and
Mothers' Health Protection Act of 1996, or any amendment to each such
act, or any similar provisions of state law applicable to its
Employees. The Company will make available to Buyer five (5) days prior
to the Closing a list of former employees terminated within the last
eighteen (18) months who are entitled to COBRA coverage and the date on
which such COBRA coverage terminates.
3.14 EMPLOYEE BENEFIT PLANS.
(a) SCHEDULE 3.14(A) lists: (i) each plan, fund, program,
agreement or arrangement for the provision of executive compensation,
deferred or incentive compensation, profit sharing, stock bonus, bonus,
stock option, stock purchase, termination, salary continuation,
employee assistance, supplemental retirement, severance, vacation,
sickness, disability, death, fringe benefit, insurance, medical or
other benefits (whether provided through insurance, on a funded or
unfunded basis, or otherwise) to any current or former employee,
director, consultant or independent contractor, or any dependent,
survivor or beneficiary with respect to any of the foregoing, which is
maintained, administered or contributed to by the Company, whether or
not legally binding; (ii) each Employee Pension Benefit Plan which has
been maintained, administered or contributed to by the Company, any
ERISA Affiliate of the Company in the past six (6) years (the "PENSION
PLANS"); and (iii) each Employee Welfare Benefit Plan which is
currently maintained, administered or contributed to by the Company
(the "WELFARE PLANS") (collectively, the "BENEFIT PLANS").
(b) Each Pension Plan which is intended to qualify under
Section 401(a) of the Code so qualifies: (i) with respect to the form
of its plan documents and (ii) in operation. Each Benefit Plan (and
each related trust, insurance contract or fund) has been administered
in all material aspects in accordance with its governing instruments
and all applicable Law.
-15-
(c) There have been no Prohibited Transactions with respect to
any Benefit Plan which could result in liability to the Company, or, To
the Best of the Sellers' Knowledge, any of their respective employees.
There has been no breach of fiduciary duty (including violations under
Part 4 of Title I of ERISA) with respect to any Benefit Plan which
could result in liability to the Company, or, To the Best of the
Sellers' Knowledge, any of its employees.
(d) Neither the Company nor any or its ERISA Affiliates have
ever maintained, contributed to, had any obligation to contribute to,
or had any other liability under or with respect to any Employee
Pension Benefit Plan covered by Title IV of ERISA or ERISA Section 302
or Section 412 of the Code. Neither the Company nor any of its ERISA
Affiliates have ever had any liability under or with respect to any
"multiemployer plan" as defined in ERISA Section 3(37).
(e) The Company has not have ever sponsored, maintained,
administered, contributed to, had any obligation to contribute to, or
had any other liability under or with respect to any Employee Welfare
Benefit Plan which provides health, life or other coverage for former
directors, officers or employees (or any spouse or former spouse or
other dependent thereof), other than benefits required by COBRA.
(f) Neither the Company nor any of its ERISA Affiliates have
ever maintained a "voluntary employees beneficiary association" within
the meaning of Section 501(c)(9) of the Code or any other "welfare
benefit fund" as defined in Section 419(e) of the Code.
(g) All reports and information relating to each Benefit Plan
required to be filed with any governmental agency or authority have
been timely filed, or have been filed without any current liability for
late filing, and are accurate in all material respects; all reports and
information relating to each such Benefit Plan required to be disclosed
or provided to participants or their beneficiaries have been timely
disclosed or provided, and there are no restrictions on the right of
the Company to terminate such plan or decrease (prospectively) the
level of benefits under any Benefit Plan after the Closing Date without
liability to any participant or beneficiary thereunder.
(h) There has been delivered to Buyer, with respect to each
Benefit Plan, the following: (i) a copy of the annual report (if
required under ERISA) with respect to each such Benefit Plan for the
last three (3) years (including all schedules and attachments); (ii) a
copy of the summary plan description, together with each summary of
material modification required under ERISA with respect to such Benefit
Plan; (iii) except as set forth in SCHEDULE 3.14(H), a true and
complete copy of each written Benefit Plan; (iv) all trust agreements,
insurance contracts, and similar instruments with respect to each
funded or insured Benefit Plan and with respect to Pension Plans, each
written plan document and all amendments thereto which have been
adopted since the inception of such plan; (v) copies of all
nondiscrimination and top-heavy testing reports for the last three (3)
plan years with respect to each Benefit Plan subject to
nondiscrimination and/or top-heavy testing; and (vi) any investment
management agreements, administrative services contracts or similar
agreements relating to the ongoing administration and investment of any
Benefit Plan.
-16-
(i) Each Benefit Plan sponsored by the Company is terminable
or amendable to decrease prospectively the level of its benefits at the
discretion of such entity with no more than ninety (90) days advance
notice and without material cost to such entity. The Company may,
without material cost, withdraw its employees, directors, officers and
consultants from any Benefit Plan which is not sponsored by such
entity. No Benefit Plan has any provision which could increase or
accelerate benefits or any provision which could increase liability to
the Company as a result of the transactions contemplated hereby, alone
or together with any other event. To the Best of Sellers' Knowledge, no
officer, director, agent or employee of the Company or any of its ERISA
Affiliates has made any material oral or written representation which
is inconsistent with the terms of any Benefit Plan.
(j) The Company has not liability with respect to any Employee
Welfare Benefit Plan or Employee Pension Benefit Plan.
(k) All employees of the Company were permitted to participate
in the Company's 401(k) Plan after completing 12 months eligibility
service without regard to actual hours of service or job
classification.
3.15 COMPLIANCE WITH LAWS. The Company has complied, and the use and
operation of the Facility is in compliance, in all material respects, with all
applicable Laws which affect the Business, and has timely filed with the proper
authorities all material statements and reports required by the Laws to which
the Business is subject. The Company holds all material permits, licenses,
certificates, approvals, registrations, franchises, rights, qualifications and
other authorizations of federal, state and local governments, agencies and
regulatory authorities required for the conduct of the Business as operated to
the date hereof (collectively, the "PERMITS"). SCHEDULE 3.15 sets forth a
complete and accurate list of each Permit. The Company does not (1) hold any
Permit issued by any state or federal agency. To the Best of Sellers' Knowledge,
there is not pending or proposed any order, notice, rule, or directive, issued
by any governmental authority against the Company, nor, To the Best of Sellers'
Knowledge, is there now pending or threatened any legal or regulatory proceeding
by any governmental authority which is likely to materially adversely affect the
Business or assets of the Company or any Permit.
3.16 ENVIRONMENTAL MATTERS. Except as set forth in SCHEDULE 3.16,
Sellers represent and warrant that:
(a) To the Best of Sellers' Knowledge, the Company materially
complies, and at all times during Sellers' ownership of the Membership
Interests has been in material compliance, with applicable
Environmental Laws;
(b) None of Sellers nor the Company has received any written
request for information, or has been notified that it is a potentially
responsible party, under CERCLA or any similar state or local law with
respect to any on-site or offsite location;
-17-
(c) To the Best of Sellers' Knowledge the Company has obtained
all required material Environmental Permits relating to the Business,
enabling the Business to operate as of the Closing Date in the ordinary
course of business consistent with past practices;
(d) None of Sellers nor the Company has received any notice,
notification, demand, request for information, citation, summons,
complaint or order and, To the Best of Sellers' Knowledge, there is no
violation, claim, demand, litigation, proceeding or governmental
investigation (whether pending or threatened) arising from applicable
Environmental Laws by or against the Company. The Company is not
subject to any judgment, decree, order, or consent agreement relating
to compliance with any Environmental Laws, or the cleanup of Hazardous
Materials under any Environmental Laws;
(e) Sellers have delivered true, complete and correct copies
of any reports, or other documents possessed by or in the control of
Sellers or the Company pertaining to the environmental condition of the
Facility, Hazardous Materials on the Facility and regarding the
Company's compliance with applicable Environmental Laws. Except for
such reports or documents, at no time during Sellers' ownership of the
Membership Interests has there been any material investigation, study,
audit, test, review or other material analysis (including any Phase I
environmental assessments) conducted by, for, or provided to Sellers or
the Company in relation to the Business;
(f) Except as set forth in SCHEDULE 3.16, To the Best of
Sellers' Knowledge, the Facility does not contain any underground
storage tanks. To the best of the Sellers' knowledge, except as set
forth in SCHEDULE 3.16, there have been no material discharges,
emissions, spilling, leaking, pouring, emptying, or other releases of
Hazardous Materials which are or were reportable by Sellers or the
Company under any Environmental Laws.
(g) To the Best of Sellers' Knowledge, (i) the Report of Phase
I Environmental Site Assessment prepared by CGFA Services, Inc., dated
June 5, 2000, is accurate and, except as set forth on SCHEDULE 3.16,
includes an investigation and assessment of all parts of the real
property upon which the Facility is presently located.
3.17 AFFILIATE TRANSACTIONS. Except as set forth on SCHEDULE 3.17, no
Affiliate of the Company, nor any member, manager, officer, director or equity
holder of any thereof, is party to any agreement (other than the Company's
Charter Documents), or, To the Best of Sellers' Knowledge, any transaction or
understanding, with the Company. Except as set forth on SCHEDULE 3.17, the
consummation of the transactions contemplated by this Agreement will not (either
alone, or upon the occurrence of any act or event, or with the lapse of time, or
both) result in any benefit or payment (severance or other) arising or becoming
due from the Company to any entity or person other than Sellers in accordance
with the terms of this Agreement.
3.18 INTELLECTUAL PROPERTY RIGHTS. SCHEDULE 3.18 lists all of the
Intellectual Property owned or licensed by the Company and used in connection
with its Business (the "COMPANY INTELLECTUAL PROPERTY"). To the Best of Sellers'
Knowledge, use by Company of the Company Intellectual Property does not infringe
any rights of any third party and no activity of any third party infringes upon
the rights of the Company with respect to any of the Company Intellectual
-18-
Property. To the Best of Sellers' Knowledge, no claims have been asserted by any
entity or person with respect to challenging the ownership, validity,
enforceability or use of the Company Intellectual Property, nor to the best of
the Sellers' knowledge, is there any valid grounds for any such bona fide
claims. To the extent the Company uses any Intellectual Property owned by a
third party, the Company has a license with such third party for the use of such
Intellectual Property and, to the best of the Sellers' knowledge, is not in
default under any such license.
3.19 BANK ACCOUNTS; POWERS OF ATTORNEY. SCHEDULE 3.19 lists each bank,
trust company, savings institution, brokerage firm, mutual fund or other
financial institution with which the Company has an account or safe deposit or
lock box and the names and identification of all persons authorized to draw on
it or to have access to it as of the Closing Date. Except as set forth on
SCHEDULE 3.19, neither the Company, nor any of its managers or officers, has any
power of attorney with respect to the Business outstanding.
3.20 FUEL VOLUME RECORDS. Five (5) days prior to Closing, the Company
will provide true and correct copies of the Company's fuel volume records and
gross receipt statements for the period from startup through five (5) days prior
to the Closing, reflecting the volume of fuel sold by the Company, and revenues
on which the Company paid any fee, during such period are attached as SCHEDULE
3.20. Such statements accurately reflect the volume of fuel sold and revenues
earned by the Company during such period and were prepared in accordance with
the Company's books and records.
3.21 INTENTIONALLY OMITTED.
3.22 INTENTIONALLY OMITTED.
3.23 ACCURACY OF REPRESENTATIONS. No representation, warranty,
statement or schedule furnished by the Company or any Seller to Buyer in
connection with the transactions contemplated hereby contains any untrue
statement of any material fact or omits to state any material fact necessary in
order to make the statements contained herein or therein not misleading. There
is no fact known to the Company or any Seller that has specific application to
either the Company or any Seller (other than general economic or industry
conditions) and that materially adversely affects or, as far as the Company or
any Seller can reasonably foresee, materially threatens, the assets, business,
prospectus, financial condition, or results of operations of the Company that
has not been set forth in this Agreement or the schedules hereto.
3.24 FOREIGN PERSON. Each Seller represents and warrants that he, she,
or it is not a "foreign person" within the meaning of the Internal Revenue Code
Section 1445.
3.25 SECURITIES LAW COMPLIANCE.
(a) Such Seller has a net worth sufficient to bear the
economic risk (including the entire loss) of its investment made in the
Member Note, Warrant and the underlying shares of Buyer;
(b) Such Seller is an "ACCREDITED INVESTOR," as such term is
defined in Rule 501 of Regulation D promulgated under the rules and
regulations of the Securities Act that is in compliance with paragraph
(b)(2) of Rule 502 of Regulation D promulgated under the Securities
Act;
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(c) Such Seller has adequate means of providing for its
current cash needs and personal contingencies and has no need for
liquidity in this investment and has no reason to anticipate any change
in its personal circumstances, financial or otherwise, which may cause
or require any sale or distribution by such Seller or all or any part
of the Buyer Securities acquired by it herein;
(d) by reason of such Seller's business or financial
experience or the business or financial experience of such Seller's
professional advisor(s) who are unaffiliated with and who are not
compensated by Buyer or any affiliate or selling agent of Buyer,
directly or indirectly, such Seller has the capacity to protect its own
interests in connection with an investment in the Buyer Securities;
(e) Such Seller understands that he, she or it is acquiring
the Buyer Securities without being furnished any prospectus or offering
circular, other than a copy of this Agreement;
(f) No representations or warranties have been made to such
Seller by Buyer or any employee or agent of Buyer and in entering into
this Agreement, such Seller is not relying on any information, other
than as a result of the independent investigation of Buyer by such
Seller, and no guarantee of any profit or return on its investment made
in the Buyer Securities has been made to such Seller;
(g) In evaluating the merits and risk of this investment, such
Seller has relied on the advice of its personal tax advisor, investment
advisor and/or legal counsel;
(h) Such Seller is aware that the Buyer Securities have not
been registered or qualified, nor is registration or qualification
contemplated, with the SEC under the Securities Act or any state
securities law. Accordingly, the Buyer Securities may be sold or
otherwise transferred or hypothecated only if they are subsequently
registered or qualified under the Securities Act or applicable laws or
if, in the opinion of counsel, an exemption from registration or
qualification thereunder is available and the transaction will not
jeopardize the availability of the exemptions under applicable federal
and state securities laws relied upon by Buyer in connection with the
offering in which such Seller acquired its Buyer Securities;
(i) Such Seller acknowledges that the Buyer Securities were
not offered by means of any general solicitation or advertising;
(j) Such Seller is acquiring its Buyer Securities solely for
its own account, for investment purposes only, and not with an intent
to sell, or for resale in connection with any distribution of all or
any portion of the Buyer Securities within the meaning of the
Securities Act;
(k) The address of such Seller furnished by such Seller at the
end of this Agreement is the principal residence of such Seller, if
such Seller is an individual, or the principal business address of such
Seller, if such Seller is a business or other entity, and that all
offers to such Seller have been made only in the state specified in
such address; and
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(l) Each Seller agrees to immediately notify Buyer in writing
if prior to Closing he, she, or it is no longer an accredited investor.
ARTICLE 4
BUYER'S REPRESENTATIONS AND WARRANTIES
--------------------------------------
As an inducement to Sellers to enter into this Agreement, Buyer
represents and warrants to Sellers that:
4.1 ORGANIZATION. Buyer is a corporation duly organized, validly
existing and in good standing under the Laws of the State of Delaware.
4.2 POWER AND AUTHORITY. Buyer has full power and authority to execute
and deliver this Agreement and the Transaction Documents and to perform its
obligations hereunder and thereunder.
4.3 AUTHORIZATION; NO BREACH. The execution, delivery and performance
of this Agreement has been, and the execution, delivery and performance of the
Transaction Documents as of the Closing will have been, duly and validly
authorized by Buyer, and this Agreement constitutes, and each of the Transaction
Documents as of the Closing will constitute, a valid and binding obligation of
Buyer, enforceable against Buyer in accordance with their respective terms
(except as may be limited by bankruptcy, insolvency, reorganization and other
similar laws and equitable principles relating to or limiting creditors' rights
generally).
4.4 BROKERAGE. No agent, broker, finder, or investment or commercial
banker engaged by or on behalf of Buyer is or will be entitled to any brokerage
commission, finders' fees or similar compensation from Sellers or any of their
respective Affiliates as a result of this Agreement or any of the transactions
contemplated herein.
4.5 LITIGATION. There is no action, suit, proceeding, judgment or order
pending or, to the best of Buyer's knowledge, threatened against or affecting
Buyer before any federal, state, municipal or other governmental court or agency
which would have a material adverse effect on Buyer's performance under this
Agreement or the Transaction Documents or the consummation of the transactions
contemplated hereby.
4.6 BUYER'S INVESTMENT REPRESENTATION. Buyer is acquiring the
Membership Interests for Buyer's own account for investment purposes only and
not with a view to or for sale in connection with a distribution thereof. Buyer
shall not sell the Membership Interests in a manner that violates any federal or
state securities laws. Buyer acknowledges that none of the Membership Interests
will be registered under, and therefore will be "restricted securities" under,
the Securities Act of 1933 as amended. Buyer is an "accredited investor" within
the definition set forth in Rule 501(a) of the Securities Act of 1933, as
amended.
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4.7 BUYER'S SECURITIES FILINGS. Since March 24, 2005, Buyer has filed
all of the relevant and applicable securities filings as required by and in
accordance with the Securities Exchange Act of 1934, as amended, and none of
such filings contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
ARTICLE 5
COVENANTS
---------
5.1 PRE-CLOSING AFFIRMATIVE COVENANTS OF SELLERS. Prior to the Closing,
Sellers shall cause the Company, as applicable, to:
(a) use commercially reasonable efforts to obtain (i) any
Ground Lease Consent and (ii) any other consents and approvals from any
parties that may be necessary or reasonably requested by Buyer to
consummate the transactions contemplated by this Agreement, including
such consents and approvals that may be necessary as a result of the
subsequent sale or transfer of Buyer or by Buyer of its rights under
this Agreement to an Affiliate of Buyer;
(b) conduct the Business only in the usual and ordinary course
of business and consistent with past practices, including, without
limitation, consistent with past practices in respect of managing
working capital (including, without limitation, not accelerating the
collection of receivables or deferring the payment of payables);
(c) use commercially reasonable efforts to keep in full force
and effect the Company's corporate existence and all rights,
franchises, Permits and Company Intellectual Property rights relating
to or pertaining to the Business;
(d) use commercially reasonable efforts to retain the
Company's employees and preserve the Company's present business
relationships;
(e) use commercially reasonable efforts to maintain the
Personal Property in customary repair, order and condition and in the
event of any casualty, loss or damage to any of the Personal Property
prior to Closing, use commercially reasonable efforts to either repair
or replace such assets with assets of comparable quality or transfer to
Buyer at Closing the proceeds of any insurance recovery with respect
thereto;
(f) maintain the Company's books, accounts and records in
accordance with past custom and practice as applied by Sellers and the
Company, as applicable, on a consistent basis;
(g) use commercially reasonable efforts to maintain all
Insurance Policies; and
(h) use commercially reasonable efforts not to be in material
default under any Material Contract, Lease or Permit and to cure any
such material default.
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5.2 SCHEDULES. The schedules are attached to this Agreement as of
execution of this Agreement. On or prior to five (5) Business Days before the
Closing Date, Sellers will provide to Buyer a complete set of the schedules
provided for in this Agreement, updated and revised as necessary from those
schedules attached as of execution of this Agreement. Notwithstanding the
foregoing, Sellers shall, as soon as reasonably practicable, give Buyer written
notice of the existence or occurrence of any condition which would make any
representation or warranty made by Sellers contained herein untrue as of the
date of this Agreement or any subsequent date as if made on and as of such
subsequent date (except for those representations and warranties which address
matters only as of a particular date) or which might reasonably be expected to
prevent the consummation of the transactions contemplated hereby. No such
written notification (or updated or revised disclosure schedule) related to the
existence or occurrence of any condition which would make any representation or
warranty made by Sellers contained herein untrue as of the date of this
Agreement shall (i) be deemed to cure any breach of any representation or
warranty resulting from such condition or (ii) constitute a waiver by Buyer of
any condition set forth in this Agreement, unless, in either case, Buyer
specifically agrees thereto in writing or consummates the Closing under this
Agreement after receipt of such written notification (or updated or revised
disclosure schedule). No such written notification related to the occurrence of
any condition arising after the date of this Agreement shall result in any
adjustment in the Purchase Price or give Buyer any right to claim damages under
this Agreement or to terminate this Agreement unless the condition or conditions
reported in such written notification (or updated or revised disclosure
schedule) constitute, or are reasonably likely to result in, a Material Adverse
Change. Notwithstanding any other provision of this Agreement to the contrary,
Buyer shall not be obligated to consummate the Closing if a revised or updated
schedule, disclosing a matter existing on or prior to the date of this
Agreement, is necessary to make a representation or warranty true and correct in
all material respects as of the date of this Agreement, and such schedule is not
accepted by the Buyer.
5.3 INTENTIONALLY OMITTED.
5.4 ACCESS. Prior to Closing, Sellers will (a) during ordinary business
hours and in a commercially reasonable manner, permit Buyer and its authorized
representatives to have access to the Facility and its respective books, records
and key personnel, (b) furnish, as soon as reasonably practicable, to Buyer or
its authorized representatives such other information in Sellers' possession
with respect to the Company as Buyer may from time to time reasonably request,
and (c) otherwise reasonably cooperate in the examination of the Company by
Buyer. No investigation or receipt of information by Buyer pursuant to this
Agreement shall diminish or obviate any of the representations, warranties,
covenants or agreements of Sellers under this Agreement or the conditions to the
obligations of Buyer under this Agreement.
5.5 PRE-CLOSING NEGATIVE COVENANTS OF SELLERS. From the Effective Date
to the Closing Date, and except as provided in SECTION 6.1(R) and SECTION
7.1(H), Sellers shall not permit the Company to, and Sellers shall not, with
respect to the Company, without the prior written consent of Buyer, which
consent shall not be unreasonably withheld, conditioned, or delayed:
(a) transfer, sell or distribute any material assets;
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(b) assume, guarantee, endorse or otherwise become liable or
responsible for any indebtedness of any other person;
(c) incur or agree to incur any material obligation or
liability, or make any material capital expenditures that are
inconsistent with the most recent budgets of the Company as provided to
Buyer on or before the date hereof, or commitments with respect
thereto;
(d) make any loans, or investments in, any other person or
entity;
(e) pledge or otherwise mortgage any material assets or allow
any Encumbrance thereupon;
(f) terminate, amend or fail to renew any Permits other than
in the ordinary course of business and with prior notice to Buyer;
(g) terminate, amend or fail to renew any Insurance Policies
other than in the ordinary course of business and with prior notice to
Buyer;
(h) materially amend, modify or terminate any Material
Contract; provided, that, the foregoing shall not preclude the Company
from amending or modifying any Material Contract without Buyer's prior
written consent, so long as such amendment or modification (i) is in
the ordinary course of business, (ii) is not adverse to the Company and
(iii) Sellers provide Buyer with prompt written notice of such
amendment or modification.
(i) increase the compensation, benefits or other remuneration
of any of the Business's current officers or key employees, other than
payment by Sellers at Closing of transaction bonuses, or enter into any
employment or consulting contract or arrangement with any person which
is not terminable at will, without penalty or continuing obligation;
(j) adopt a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or
other reorganization of the Company;
(k) except as provided for in Schedule 5.5k, alter through
merger, liquidation, reorganization, restructuring or any other fashion
the ownership of the Membership Interests by Sellers;
(l) except as expressly contemplated in this Agreement, take
any action or permit to occur any event described in SECTION 3.7;
(m) knowingly take any action or omit to take any action which
will result in a violation of any applicable Law or cause a breach of
any Material Contract, Lease, Permit or representation or warranty set
forth in ARTICLE 3;
(n) bill for goods or services, or take any action to collect
any accounts receivable, or run down inventory, in any case outside the
ordinary course of business or inconsistent with past practices, or
defer payment of any accounts payable for a period inconsistent with
past practices; or
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(o) enter into any agreement, or otherwise commit, to do any
of the foregoing.
5.6 LOT SPLIT. Principals, the Company and Western Milling shall use
commercially reasonable efforts to have a separate legal parcel created that
complies with the California Subdivision Map Act for the real property which the
Facility is located on. Principals and Company shall provide Buyer with monthly
status reports as to the Principals', the Company's and Western Millings'
efforts in connection with the foregoing. If the aforesaid legal parcel is not
created prior to the Closing Date, Western Milling agrees to use commercially
reasonable efforts to complete the separate legal parcel as soon as possible.
ARTICLE 6
CLOSING CONDITIONS - BUYER
--------------------------
6.1 BUYER'S CONDITIONS TO CLOSING. The obligation of Buyer to
consummate the transactions contemplated by this Agreement is subject to the
satisfaction of the following conditions on or before the Closing Date:
(a) The representations and warranties set forth in ARTICLE 3
and the information set forth in the schedules to this Agreement (as
such schedules may have been revised and updated between the Effective
Date and the Closing Date and accepted by Buyer, if applicable,
pursuant to SECTION 5.2) shall be true and correct as of the Closing
Date as though made on the Closing Date, and Sellers shall have
delivered to Buyer a certificate to that effect;
(b) Sellers shall have performed or complied with all of the
covenants and agreements required under this Agreement, and Sellers
shall have delivered to Buyer a certificate to that effect;
(c) No order of any court or administrative agency shall be in
effect which restrains or prohibits the transactions contemplated
hereby, and there shall not have been threatened, nor shall there be
pending, any action or proceeding by or before any court or
governmental agency or other regulatory or administrative agency or
commission challenging any of the transactions contemplated by this
Agreement or seeking monetary relief by reason of the consummation of
such transactions;
(d) Sellers shall have executed and delivered to Buyer
original or facsimile counterparts of each Transaction Document to
which it is a party (in accordance with the provision in SECTION 8.1
permitting the use of facsimile copies) and any other closing documents
to be delivered by Sellers at Closing to Buyer pursuant to SECTION 8.3
of this Agreement;
(e) The governmental approvals and consents by third parties
set forth on SCHEDULE 6.1(E) shall have been obtained and no such
approval or consent shall have been conditioned upon the modification
in any material respect, cancellation or termination of any Material
Contract, Lease or Permit or shall impose on Buyer or the Company any
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material condition, provision, fee or requirement not presently imposed
upon the Company or any condition, provision or requirement that would
be materially more restrictive after the Closing than the conditions,
provisions and requirements presently imposed on the Company;
(f) Buyer shall have received reasonable confirmation from
Sellers of the absence of any and all deeds of trust, assignments of
rents, security agreements, Uniform Commercial Code filings and fixture
filings affecting the Company or its Facility or Business;
(g) Sellers shall have delivered an opinion of counsel, dated
as of the Closing Date and addressed to Buyer, substantially in the
form set forth as EXHIBIT "E", with respect to (i) the due
authorization, execution, delivery and enforceability of the Opinion
Documents (as said term is defined in EXHIBIT "E") and (ii) no
conflicts between Sellers' obligations under this Agreement and the
Company's Charter Documents;
(h) Buyer shall have received the resignation of such officers
or managers of the Company as Buyer requests;
(i) Buyer shall have received (i) a good standing certificates
and foreign qualification certificates, if any, for the Company, (ii)
copies of the Charter Documents of the Company, (iii) resolutions or
instruments of the Company authorizing the execution, delivery and
performance by the Company of this Agreement and the transactions
contemplated by this Agreement, (iv) any and all original documents
relating to any meetings or actions taken by the Company's managers or
members, and (v) an incumbency certificate evidencing the authority and
specimen signature of each authorized person of the Company executing
this Agreement and any other certificate provided pursuant to this
SECTION 6.1, each in form and substance reasonably satisfactory to
Buyer and certified by an authorized person of the Company as of the
Closing Date. Such certification shall state that such Charter
Documents and resolutions (or other authorizing actions or instruments)
have not been amended, modified, revoked or rescinded and are in full
force and effect on and as of the Closing Date and that all company
proceedings required to be taken on the part of the Sellers and the
Company, if any, in connection with the transactions contemplated by
this Agreement have been duly authorized and taken;
(j) Sellers shall have delivered to Buyer five (5) business
days prior to the Closing Date, a written statement setting forth the
principal amount and the accrued interest owing under the MetLife Note,
duly executed by Sellers' Representative;
(k) Buyer shall have agreed with Sellers upon the principles,
specifications and methodologies for determining Net Working Capital;
(l) There has not been any Material Adverse Change;
(m) Buyer shall have had an opportunity to inspect the
Facility's operations to Buyer's sole satisfaction, however, any such
inspection shall not limit the scope of the representations and
warranties and indemnification to be provided by Sellers pursuant to
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the terms of this Agreement, without limiting the scope of the
foregoing, the Facility must be producing at a minimum rate of 25 MMGY
of undenatured ethanol, meet industry average plan efficiencies with
respect to corn conversion and energy efficiency and Buyer shall have
the right to have an independent performance test run by a third party
expert to determine if the Facility meets these standards;
(n) The Company shall be in compliance with all applicable
laws and ordinances;
(o) Buyer shall have obtained financing necessary for payment
in part of the Purchase Price;
(p) All Sellers have signed all the Transaction Documents
which they are required to sign and Buyer will be able to acquire at
Closing all the Membership Interests; and
(q) All permits necessary for the continued operation of the
Facility following the Closing Date will be in place.
(r) Buyer shall have reviewed and approved contemplated
amendments and modifications to certain Material Contracts, including
the Development and Operations Agreement, the Supply and Output
Agreement and Energy Agreement.
6.2 WAIVER OF CONDITIONS. Any conditions specified in SECTION 6.1 may
be waived by Buyer in writing.
ARTICLE 7
CLOSING CONDITIONS - SELLERS
----------------------------
7.1 CONDITIONS TO CLOSING. The obligation of Sellers to consummate the
transactions contemplated by this Agreement is subject to the satisfaction of
the following conditions on or before the Closing Date:
(a) Buyer shall have delivered the Purchase Price to Sellers
in accordance with the terms of this Agreement and the issuance of
warrants referred to in SECTION 2.1;
(b) The representations and warranties set forth in ARTICLE 4
shall be true and correct as of the Closing Date as though made on the
Closing Date, and Buyer shall have delivered to Sellers a certificate
to that effect;
(c) Buyer shall have performed or complied with all of the
covenants and agreements required under this Agreement, and Buyer shall
have delivered to Sellers a certificate to that effect;
(d) No order of any court or administrative agency shall be in
effect which restrains or prohibits the transactions contemplated
hereby, and there shall not have been threatened, nor shall there be
pending, any action or proceeding by or before any court or
governmental agency or other regulatory or administrative agency or
-27-
commission challenging any of the transactions contemplated by this
Agreement or seeking monetary relief by reason of the consummation of
such transactions;
(e) Buyer shall have executed and delivered to Sellers
original or facsimile counterparts of each Transaction Document to
which it is a party (in accordance with the provision in SECTION 8.1
permitting the use of facsimile copies);
(f) Sellers shall have agreed with Buyer upon the principles,
specifications and methodologies for determining Net Working Capital;
(g) Sellers shall have received a good standing certificate
and a copy of the Charter Documents and resolutions of the Board of
Directors (or other authorizing actions or instruments) and the
stockholders, if necessary, of Buyer authorizing the execution,
delivery and performance by Buyer of this Agreement and the
transactions contemplated by this Agreement, and an incumbency
certificate evidencing the authority and specimen signature of each
officer of Buyer executing this Agreement and any other certificate
provided pursuant to this SECTION 7.1, each in form and substance
reasonably satisfactory to Sellers and certified by the secretary or an
assistant secretary of Buyer (or another responsible officer of Buyer)
as of the Closing Date. Such certification shall state that such
Charter Documents and resolutions (or other authorizing actions or
instruments) have not been amended, modified, revoked or rescinded and
are in full force and effect on and as of the Closing Date and that all
corporate proceedings required to be taken on the part of the Buyer in
connection with the transactions contemplated by this Agreement have
been duly authorized and taken; and
(h) If the MetLife Note is assumed then as a condition to
closing the Buyer shall be responsible for obtaining release of all
personal guarantees related to the Met Life Note.
(i) Seller shall have reviewed and approved the contemplated
amendments and modifications to certain Material Contracts including
the Development and Operations Agreement, the Supply and Output
Agreement and the Energy Agreement.
(j) Buyer shall have confirmed to Seller in writing that the
Facility is producing a minimum rate of undenatured ethanol
satisfactory to Buyer, that the Facility meets plant efficiencies with
respect to corn conversion and energy efficiency satisfactory to Buyer,
and that the Buyer is fully satisfied with the performance of all
operating functions and other facets of the Facility.
7.2 WAIVER OF CONDITIONS. Any condition specified in SECTION 7.1 may be
waived by Sellers in writing.
ARTICLE 8
CLOSING MATTERS
---------------
8.1 THE CLOSING. The closing of the transactions contemplated in this
Agreement (the "CLOSING") will take place at the offices of Rutan & Tucker, LLP
in Costa Mesa, California at 10:00 a.m. (local time), or at such other place as
Buyer and Sellers may mutually agree, on a Business Day selected by Buyer and
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Sellers that is no sooner than three (3) days and no later than five (5) days
after the day on which the last of the conditions to Closing set forth in
SECTION 6.1 and SECTION 7.1 (other than those conditions which are only capable
of being satisfied contemporaneous with the Closing) have been satisfied or
waived (the "CLOSING DATE"). Notwithstanding the foregoing, the Closing shall
take place on that date which is the sooner of (i) sixty (60) days after the
date on which at least 5,000 gallons of ethanol has been produced in one day and
(ii) October 15, 2005. The actual date on which at least 5,000 gallons of
ethanol has been produced in one day is hereinafter referred to as the
"MILESTONE DATE". Sellers' Representative shall provide Buyer with written
notice of the Milestone Date within five (5) days of the date the Milestone Date
occurs. Notwithstanding the foregoing, the Closing will be extended one (1) day
for each day by which the Sellers fail to timely deliver updated Disclosure
Schedules prior to the Closing as required hereunder in SECTION 5.2. The Parties
agree that signature pages of documents required to be delivered at the Closing
may be delivered by facsimile, provided that originally executed documents must
be sent via overnight courier immediately thereafter. The Closing will be
effective as of 12:01 a.m. on the Closing Date (the "EFFECTIVE TIME").
8.2 ACTION TO BE TAKEN AT THE CLOSING; PAYMENT OF PURCHASE PRICE. The
sale and delivery of the Membership Interests and the payment of the Purchase
Price shall take place at the Closing. The Purchase Price shall be as follows:
(a) the balance of the Purchase Price, to each of the Sellers
in the percentages set forth opposite each Seller's name on SCHEDULE 1.
8.3 CLOSING DOCUMENTS.
(a) Each of the Sellers shall deliver to Buyer at the Closing
the following items and documents (collectively, the "TRANSACTION
DOCUMENTS"), duly executed by each Seller where necessary to make them
effective:
(i) Assignments of Limited Liability Company
Membership Interests, each in the form attached hereto as
EXHIBIT "B";
(ii) a certificate dated the Closing Date, signed by
the Principals, to the effect that the conditions set forth in
SECTIONS 6.1(A) AND (B) have been satisfied;
(iii) a certificate(s) dated the Closing Date, signed
by the Principals, as applicable, in accordance with SECTION
6.1(J);
(iv) such instruments of assumption and other
documents or instruments as Buyer reasonably may request to
effect the transaction contemplated hereby;
(v) an opinion from counsel to the Sellers in the
form attached hereto as EXHIBIT "E";
(vi) spousal consents from all applicable Sellers;
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(vii) irrevocable powers of attorney from all Sellers
in such form as approved by Buyer; and
(viii) a Registration Rights Agreement in the form of
EXHIBIT "F".
(b) In addition to paying the Purchase Price in accordance
with SECTION 8.2, Buyer shall deliver to Sellers at the Closing the
following items and documents, duly executed by Buyer where necessary
to make them effective:
(i) Assignments of Limited Liability Company
Membership Interests, each in the form attached hereto as
EXHIBIT "B";
(ii) a certificate dated the Closing Date, signed on
its behalf by an authorized officer, to the effect that the
conditions set forth in SECTIONS 7.1(B) AND (C) have been
satisfied;
(iii) a certificate dated the Closing Date, signed on
its behalf by an authorized officer, in accordance with
SECTION 7.1(G);
(iv) the Member Notes in the form of EXHIBIT "C";
(v) such instruments of assumption and other
documents or instruments as Sellers reasonably may request to
effect the transaction contemplated hereby;
(vi) the Warrants in the form of EXHIBIT "D".
(vii) a Registration Rights Agreement in the form of
EXHIBIT "F".
ARTICLE 9
INDEMNIFICATION;
----------------
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; RELEASE
---------------------------------------------------
9.1 INDEMNIFICATION OF BUYER AND THE COMPANY. The Sellers severally
covenant and agree (except as to any inaccuracy or breach of the representations
and warranties contained In SECTIONS 3.2, 3.3(A), 3.5 AND 3.25 in which event
only the Seller making such representation and warranty shall be liable) to
indemnify, defend and hold harmless Buyer and the Company and their Affiliates,
representatives and permitted assigns from and against any and all Losses as
hereinafter described in this SECTION 9.1, directly or indirectly, as a result
of, or based upon or arising from:
(a) subject to SECTIONS 9.5 AND 9.7 hereof, any material
inaccuracy in, omission from or breach or nonperformance of any of the
representations or warranties made by Sellers or the Company in or
pursuant to this Agreement or any other Transaction Document, other
than the representations and warranties set forth in SECTION 3.1
(Organization), 3.2 (Power and Authority), 3.3(A), 3.5 (Capitalization
of the Company and Title to Membership Interest), and 3.25 (Accredited
-30-
Investor Status) of this Agreement, which representations and
warranties shall be subject to the indemnification provisions of
SECTION 9.1(B) hereof;
(b) any inaccuracy in, omission from or breach or
nonperformance of any of the representations or warranties made by
Sellers in SECTION 3.1 (Organization), 3.2 (Power and Authority),
3.3(A), 3.5 (Capitalization of the Company and Title to Membership
Interest), and 3.25 (Accredited Investor Status) of this Agreement;
(c) the failure of the Sellers or the Company to perform or
observe fully any covenant, provision or agreement to be performed or
observed by it pursuant to this Agreement or any Transaction Document;
and
(d) any of the specific indemnification matters referenced in
SCHEDULE 9.1.
For the purposes of this Agreement the term "LOSS" means on a dollar
for dollar basis any action, cost, damage, disbursement, expense, liability,
loss, deficiency, obligation, penalty or settlement of any kind or nature,
whether foreseeable or unforeseeable, whether or not arising out of third-party
claims, including, but not limited to, interest or other carrying costs,
penalties, legal, accounting, attorneys' and other professional fees and
expenses incurred in the litigation, arbitration, investigation, collection,
prosecution and defense of claims, actual or threatened, amounts paid in
settlement, that may be imposed on or otherwise incurred or suffered by the
specified person.
If and to the extent that Buyer is entitled to payments in respect of
indemnification under this ARTICLE 9, Buyer shall be entitled to offset against
any one or more payments due and payable in respect of the Member Note dollar
for dollar, for amounts which have been determined to be due to Buyer in respect
of such indemnification on a prorata basis on each Member Note. The amount
entitled to be offset hereunder is referred to herein as the "OFFSET." At its
option, and at any time(s) that Buyer may elect, upon notice (the "OFFSET
NOTICE") to the Sellers' Representative (as hereinafter defined in SECTION 9.8),
Buyer may twenty (20) days from the date Sellers' Representative is in receipt
of the Offset Notice deduct from any payment of the Member Note due hereunder an
amount equal to all or any portion of the Member Note up to the full amount of
such Payments as of the date of such deduction, but only to the extent that
Buyer has not previously deducted such portion of the Offset from previous
payments of the Member Note due hereunder. If the Sellers' Representative gives
written notice to Buyer within twenty (20) days after receipt of any Offset
Notice that he objects to the proposed Offset, Buyer will be required to pay the
amount of such proposed Offset into a mutually agreeable neutral third-party
escrow where the funds will be held pending resolution of such dispute pursuant
to SECTION 11.8 of this Agreement. Subject to the Sellers' Representative's
right to dispute as previously set forth, the Offset shall be applied to the
next payment of the Member Note then due hereunder following the date of the
Notice, and to any payment thereafter until such time as the amount of the
Offset shall be reduced to zero.
Notwithstanding anything to the contrary set forth herein, Sellers'
indemnification obligations pursuant to SECTIONS 9.1(B) AND 9.1(D) shall not be
subject to or limited by, in any way, any of the provisions of SECTION 9.7
hereof.
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9.2 INDEMNIFICATION OF SELLERS. Buyer covenants and agrees to
indemnify, defend and hold harmless Sellers and their Affiliates,
representatives and permitted assigns from and against any and all Losses of
Sellers, directly or indirectly, as a result of, or based upon or arising from:
(a) subject to SECTION 9.5, any inaccuracy in or breach or
nonperformance of any of the representations, warranties, covenants or
agreements made by Buyer in or pursuant to this Agreement; or
(b) the failure of Buyer to perform or observe fully any
covenant, provision or agreement to be performed or observed by it
pursuant to this Agreement.
9.3 CERTAIN TAX MATTERS.
(a) INDEMNIFICATION OF BUYER. Goshen Ethanol, LLC, Kruse
Investment Company, Inc., the Mark S.. and Pamela Wheeler Trust dated
February 1, 1996 and Western Milling (collectively the "Primary
Sellers") agree to jointly and severally indemnify, defend and hold
harmless Buyer and the Company against the following tax matters (the
"TAX MATTERS"): (i) any Tax payable by or on behalf of Sellers or the
Company, for any taxable period ending on or prior to the Closing Date,
(ii) any deficiencies in any Tax payable by or on behalf of Sellers or
the Company arising from any audit by any taxing agency or authority
with respect to any period ending on or prior to the Closing Date,
(iii) any claim or demand for reimbursement or indemnification
resulting from any transfer by Sellers prior to the Closing of any Tax
benefits or credits to any other person, (iv) any Tax liabilities
arising out of the transfer of the Membership Interests, and (v) with
respect to any Taxes due for Tax periods ending after the Closing Date,
a pro rata share of such Tax calculated as if the period ended on the
Closing Date.
(b) AUDIT MATTERS. Sellers' Representative shall have the
right, at Sellers' expense subject to the execution of a
confidentiality agreement by Sellers and the Sellers' Representative,
in form and substance reasonably satisfactory to Buyer, for the purpose
of protecting the confidentiality and use of information of Buyer, and
the Company) (i) to participate in the audit (and disposition thereof)
of any Tax Return relating to periods ending on or prior to the Closing
Date and to participate in the disposition of the audit of any Tax
Return relating to the periods ending after the Closing Date if such
audit or disposition thereof could give rise to a claim for
indemnification hereunder, (ii) to review in advance and comment upon
all submissions made in the course of audits or appeals thereof to any
governmental entity relating to periods on or prior to the Closing Date
and (iii) to approve the disposition of any audit adjustment with
respect to such periods if such disposition will or reasonably might be
expected to result in a claim for indemnification hereunder. However,
Buyer shall have the right directly or through its designated
representatives, to review in advance and comment upon all submissions
made in the course of audits or appeals thereof to any governmental
entity relating to periods on or prior to the Closing Date and to
approve the disposition of any audit adjustment with respect to such
periods if such disposition will or might be expected to result in,
directly or indirectly, an increase in Taxes of Buyer or the Company
for any period beginning at or after the Closing.
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(c) COOPERATION ON TAX MATTERS. After the Closing Date,
Sellers' Representative, on the one hand, and Buyer and the Company on
the other, shall (i) provide, or cause to be provided, to each other's
respective officers, employees, representatives and affiliates, such
assistance as may reasonably be requested by any of them in connection
with the preparation of any Return, or any audit of the Company in
respect of which Sellers, on the one hand or Buyer or the Company on
the other, as the case may be, are responsible, and (ii) retain, or
cause to be retained, for so long as any such taxable years or audits
shall remain open for adjustments, any records or information which may
be relevant to any such Returns or audits. The assistance provided for
in this SECTION 9.3(C) shall include without limitation Sellers, Buyer
and the Company (x) making their agents and employees and the agents
and employees of their respective Affiliates available to each other on
a mutually convenient basis to provide such assistance as might
reasonably be expected to be of use in connection with any such Tax
Returns or audits and (y) providing, or causing to be provided, such
information as might reasonably be expected to be of use in connection
with any such Returns or audits, including without limitation records,
returns, schedules, documents, work papers, opinions, letters or
memoranda, or other relevant materials relating thereto.
9.4 PROCEDURE.
(a) NOTICE. Any party seeking indemnification with respect to
any Loss shall give written notice to the party required to provide
indemnity hereunder (the "INDEMNIFYING PARTY").
(b) DEFENSE. In the event any person or entity not a party to
this Agreement shall make a demand or claim or file or threaten to file
or continue any lawsuit, which demand, claim or lawsuit may result in
liability to an Indemnified Party in respect of matters embraced by the
indemnity under this Agreement, or in the event that a potential loss,
damage or expense comes to the attention of any party in respect of
matters embraced by the indemnity under this Agreement, then the Party
receiving notice or aware of such event shall promptly notify the other
Party or Parties of the demand, claim or lawsuit. Within ten (10) days
after notice by the Indemnified Party (the "NOTICE") to an Indemnifying
Party of such demand, claim or lawsuit, except as provided in the next
sentence, so long as the Indemnifying Party first agrees in writing
with the Indemnified Party that the Indemnifying Party has an
obligation to indemnify the Indemnified Party with respect to such
demand, claim or lawsuit, the Indemnifying Party shall have the option,
at its sole cost and expense, to retain counsel for the Indemnified
Party, to defend any such demand, claim or lawsuit, provided that
counsel who will conduct the defense of such demand, claim or lawsuit
will be approved by the Indemnified Party whose approval will not
unreasonably be withheld; provided, further, that the Indemnifying
Party may not make such election (and for the avoidance of doubt and
without limiting the Indemnifying Party's obligations under this
ARTICLE 9, the Indemnifying Party shall pay for all costs and expenses
of the Indemnified Party's defense, including expenses of the
Indemnified Party's counsel) if (i) the Indemnifying Party is also a
party to such demand, claim or lawsuit and the Indemnified Party
determines in good faith that joint representation would be
inappropriate, (ii) the Indemnifying Party both fails to provide
reasonable assurance to the Indemnified Party of its financial capacity
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to defend such demand, claim or lawsuit and provide indemnification
with respect to such demand, claim or lawsuit, (iii) the Indemnified
Party determines in good faith that there is a reasonable probability
that such demand, claim or lawsuit may adversely affect it or its
Affiliates other than as a result of monetary damages for which it
would be entitled to indemnification under this Agreement, except where
nonmonetary relief is merely incidental to a primary claim or primary
claims for monetary damages, or (iv) the claim involves Taxes. In the
event Section 9.4(b)(iii) applies the Indemnifying Party will not be
bound by any determination of such proceeding or any compromise or
settlement effected without the Indemnifying Party's consent which
shall not be unreasonably withheld. The Indemnified Party shall have
the right, at its own expense, to participate in the defense of any
suit, action or proceeding brought against it with respect to which
indemnification may be sought hereunder; provided, however, if (x) the
named parties to any such proceeding (including any impleaded parties)
include both the Indemnifying Party and the Indemnified Party and
representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between
them, or (y) the employment of counsel by such Indemnified Party has
been authorized in writing by the Indemnifying Party, or (z) the
Indemnifying Party has not in fact employed counsel to assume the
defense of such action within a reasonable time; then, the Indemnified
Party shall have the right to retain its own counsel at the sole cost
and expense of the Indemnifying Party, which costs and expenses shall
be paid by the Indemnifying Party on a current basis. No Indemnifying
Party, in the defense of any such demand, claim or lawsuit, will
consent to entry of any judgment or enter into any settlement without
the consent of the Indemnified Party. If any Indemnified Party will
have been advised by counsel chosen by it that there may be one or more
legal defenses available to such Indemnified Party which are different
from or additional to those available to and which have not been
asserted by the Indemnifying Party, the Indemnifying Party will not
have at the election of the Indemnified Party, the right to continue
the defense of such demand, claim or lawsuit on behalf of such
Indemnified Party and will reimburse such Indemnified Party and any
person controlling such Indemnified Party on a current basis for the
reasonable fees and expenses of any counsel retained by the Indemnified
Party to undertake the defense. In the event that the Indemnifying
Party shall fail to respond within ten (10) days after receipt of the
Notice, the Indemnified Party may retain counsel and conduct the
defense of such demand, claim or lawsuit, as it may in its sole
discretion deem proper, at the sole cost and expense of the
Indemnifying Party, which costs and expenses shall be paid by the
Indemnifying Party on a current basis. Except as explicitly provided in
this SECTION 9.4(B), failure to provide Notice shall not limit the
rights of such party to indemnification, except to the extent such
failure is actually prejudicial to the rights and obligations of the
Indemnifying Party.
(c) TAX ADJUSTMENTS. Any amounts payable by the Indemnifying
Party to or on behalf of an Indemnified Party in respect of a Loss
shall be adjusted as follows:
(i) If an Indemnified Party is liable for any
additional Taxes as a result of the payment of amounts in
respect of an Indemnifiable Claim, the Indemnifying Party will
pay to the Indemnified Party in addition to such amounts in
respect of the Loss within ten (10) days after being notified
by the Indemnified Party of the payment of such liability (x)
an amount equal to such additional Taxes (the "TAX
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REIMBURSEMENT AMOUNT") plus (y) any additional amounts
required to pay additional Taxes imposed with respect to the
Tax Reimbursement Amount and with respect to amounts payable
under this clause (y), with the result that the Indemnified
Party shall have received from the Indemnifying Party, net of
the payment of Taxes, an amount equal to the Loss; and
(ii) The Indemnified Party shall reimburse the
Indemnifying Party an amount equal to the net reduction in any
year in the liability for Taxes (that are based upon or
measured by income) of the Indemnified Party or any member of
a consolidated or combined tax group of which the Indemnified
Party is, or was at any time, part, which reduction is
actually realized with respect to any period after the Closing
Date and which reduction would not have been realized but for
the amounts paid (or any audit adjustment or deficiency with
respect thereto, if applicable) in respect of a Loss, or
amounts paid by the Indemnified Party pursuant to this
paragraph (a "NET TAX BENEFIT"). The amount of any Net Tax
Benefit shall be paid not later than fifteen (15) days after
the date on which such Net Tax Benefit shall be realized. For
purposes of this SECTION 9.4(C)(II), the Net Tax Benefit shall
be deemed to be actually realized on the date on which such
Net Tax Benefit is used to compute an obligation to pay
installments of estimated tax or, if earlier, reported
earnings; provided, however, that if the amount of any Net Tax
Benefit is subsequently affected by reason of any event or
events, including, without limitation, any payment of Taxes by
such Indemnified Party with respect to the loss of such Net
Tax Benefit upon audit or litigation, appropriate adjustments
and payments to take into account the increase or decrease in
such Net Tax Benefit shall be made between the Indemnified
Party and the Indemnifying Party within fifteen (15) days
after such event or events. Any expenses associated with the
realization of a Net Tax Benefit or any contest or proceeding
with respect to a Net Tax Benefit shall be deemed to reduce
such Net Tax Benefit.
(iii) Notwithstanding clauses (i) and (ii) of this
SECTION 9.4(C), Buyer shall have the right to irrevocably
elect, in the Notice given with respect to a Loss in an
aggregate amount less than $25,000, not to have clauses (i)
and (ii) apply with respect to such Loss.
(d) INSURANCE MATTERS. Any Indemnified Party shall be required
to use commercially reasonable efforts to submit and obtain coverage
for any claim against any insurer, and any such amounts actually paid
to the Indemnified Party shall reduce the indemnification obligations
of the Indemnifying Party with respect to such matter.
(e) MITIGATION. Notwithstanding anything to the contrary in
this Agreement, any Indemnified Party shall be required to utilize
commercially reasonable efforts to' mitigate any damages which may be a
Loss. Mitigation shall not be required if or to the extent it would or
reasonably may be expected to cause the Indemnified Party to incur any
liability, loss, cost or expense, including without limitation any Tax,
or any increase in any of the foregoing.
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9.5 SURVIVAL. The representations and warranties of Sellers in SECTION
3.1 (Organization), 3.2 (Power and Authority), 3.3(A), 3.5 (Capitalization of
the Company and Title to Membership Interest), and 3.25 (Accredited Investor
Status), of this Agreement shall survive the Closing for the period of the
applicable statute of limitations. All other representations and warranties of
the Parties in this Agreement shall survive the Closing for the period ending
twenty four (24) months after the Closing Date. The covenants and the agreements
contained in this Agreement and in the other Transaction Documents, including,
without limitation, Sellers' obligation to indemnify, defend and hold harmless
Buyer and the Company and their Affiliates, Representatives and permitted
assigns pursuant to SECTIONS 9.1(B), (C) AND (D) of this Agreement, shall
survive until satisfied. Any matter as to which a claim has been asserted by
notice to the other party that is pending or unresolved at the end of any
applicable limitation period shall continue to be covered by this ARTICLE 9
notwithstanding any applicable statute of limitations (which the Parties hereby
waive) until such matter is finally terminated or otherwise resolved by the
Parties or by a court or arbitrator of competent jurisdiction and any amounts
payable hereunder are finally determined and paid.
9.6 EXCLUSIVE REMEDY. This ARTICLE 9 shall be deemed to be the Parties'
exclusive remedy in connection with the breach of any representation and
warranty contained in this Agreement. Notwithstanding the foregoing, the Parties
may pursue other remedies available at law or in equity in the case of fraud or
a knowing and intentional misrepresentation.
9.7 INDEMNIFICATION LIMITATIONS. The aggregate dollar amount of all
payments each Seller shall be obligated to make pursuant to SECTION 9.1(A) AND
(C) of this Agreement shall not exceed an amount equal to the balance of such
Seller's Member Note plus any accrued interest which he, she or it is to
receive, and Sellers shall only be required to make payments pursuant to SECTION
9.1(A) AND (C) of this Agreement at such time that the aggregate amount of
Losses for all Sellers exceeds $100,000, in which case the Sellers will be
severally obligated to pay for all such Losses in excess of $100,000 in a
percentage amount equal to the face amount of such Seller's Member Note divided
by $8,000,000; provided, however, that these limitations shall not apply to
Losses resulting from knowing and intentional fraud or misrepresentation,
provided, further, that notwithstanding anything to the contrary herein, these
limitations shall not apply to any other obligation of Sellers pursuant to this
ARTICLE 9, including, without limitation, the obligation of Sellers to make
payments pursuant to SECTIONS 9.1(B) AND (D) hereof.
9.8 THE SELLERS' REPRESENTATIVE.
(a) The Sellers hereby authorize, direct and appoint Kevin
Kruse or Ejnar Knudsen to act as sole and exclusive agent,
attorney-in-fact and representative of the Sellers (the "SELLERS'
REPRESENTATIVE"), and authorize and direct the Sellers' Representative
to (i) take any and all actions (including without limitation executing
and delivering any documents, incurring any costs and expenses for the
account of the Sellers (which will constitute Loss incurred or suffered
by Buyer within the meaning of SECTION 9.1 hereof) and making any and
all determinations) which may be required or permitted by this
Agreement to be taken by the Sellers or the Sellers' Representative,
(ii) exercise such other rights, power and authority as are authorized,
delegated and granted to the Sellers' Representative hereunder in
connection with the transactions contemplated hereby, (iii) to receive
all payments of the Purchase Price on behalf of the Sellers and to
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distribute the same to the Sellers pro rata in accordance with their
respective Membership Interests, (iv) to take all action necessary in
connection with the defense and/or settlement of any claims for which
the Sellers may be required to indemnify the Buyer pursuant to ARTICLE
9 hereof, (v) to take all action necessary in seeking indemnification
from the Buyer pursuant to ARTICLE 9 hereof, (vi) to give and receive
all notices required to be given under this Agreement on behalf of the
Sellers, and (vii) to execute and deliver such instruments of
conveyance, agreements, releases or other document and to take such
additional actions by or on behalf of the Sellers as the Sellers'
Representative, in its sole discretion, may determine to be necessary
or appropriate in connection with the transactions contemplated by the
terms and provisions of this Agreement, (viii) to take any and all
action (including but not limited to litigation) relating to the Member
Notes including any claim that an Event of Default has occurred or any
waiver of an Event of Default, and (ix) exercise such rights, power and
authority as are incidental to the foregoing. Any such actions taken,
exercises of rights, power or authority, and any decision or
determination made by the Sellers' Representative consistent therewith,
shall be absolutely and irrevocably binding on the Sellers as if such
Seller personally had taken such action, exercised such rights, power
or authority or made such decision or determination in such Seller's
individual capacity. Notwithstanding any other provision of this
Agreement with respect to the matters covered by ARTICLE 9, (i) each of
the Sellers irrevocably relinquishes such Sellers' right to act
independently and other than through the Sellers' Representative
including, but not limited to, any closing or waiver of any alleged
event of default under any Member Note and the prosecution of any
litigation relating thereto, except with respect to the removal of the
Sellers' Representative or appointment of a successor Sellers'
Representative as provided in SECTION 9.8(B) below, and (ii) no Sellers
shall have any right under this Agreement or otherwise to institute any
suit, action or proceeding against the Company or Buyer with respect to
any such matter, any such right being irrevocably and exclusively
delegated to the Sellers' Representative. The Sellers' Representative
hereby acknowledges and accepts the foregoing authorization and
appointment and agrees to serve as the Sellers' Representative in
accordance with this Agreement.
(b) The Sellers' Representative shall serve as Sellers'
Representative until his resignation, removal from office, incapacity
or death; PROVIDED, HOWEVER, that the Sellers' Representative shall not
have the right to resign without (A) prior written notice to the
Sellers and (B) picking a successor reasonably satisfactory to Buyer to
serve until a successor thereto is elected by the Sellers. The Sellers'
Representative may be removed at any time, and a successor
representative, reasonably satisfactory to Buyer, may be appointed,
pursuant to written action by Sellers who, immediately prior to the
Closing, hold Membership Interests constituting 66 2/3% or more of all
such shares then outstanding. Any successor to the Sellers'
Representative shall, for purposes of this Agreement, be deemed to be,
from the time of the appointment thereof in accordance with the terms
hereof, the Sellers' Representative, and from and after such time, the
term "SELLERS' REPRESENTATIVE" as used herein and therein shall be
deemed to refer to such successor. No appointment of a successor shall
be effective unless such successor agrees in writing to be bound by the
terms of this Agreement.
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(c) The Sellers' Representative shall be permitted to retain
counsel, consultants and other advisors. With respect to all reasonable
fees and expenses incurred by the Sellers' Representative in conducting
the actions set forth in this Agreement, Sellers' Representative shall
be entitled to submit a claim and receive reimbursement from the
Sellers. All reasonable costs and expenses incurred by Sellers'
Representative in connection with the performance of its duties will be
paid out of the Purchase Price received by it and deducted therefrom
prior to the distribution thereof to the Sellers.
(d) The provisions or this SECTION 9.8 shall in no way impose
any obligations on Buyer. In particular, notwithstanding any notice
received by Buyer to the contrary (except any notice of the appointment
of a successor Sellers' Representative approved by Buyer in accordance
with paragraph (b) of this SECTION 9.8), Buyer (i) shall be fully
protected in relying upon and shall be entitled to rely upon, shall
have no liability to the Sellers with respect to, and shall be
indemnified by the Indemnifying Parties from and against all liability
arising out of (any such indemnifiable amounts constituting a Loss
within the meaning of SECTION 9.1 hereof) actions, decisions and
determinations of the Sellers' Representative and (ii) shall be
entitled to assume that all actions, decisions and determinations of
the Sellers' Representative are fully authorized by the Sellers. The
appointment of the Sellers' Representative shall be deemed coupled with
an interest and shall be irrevocable, and Buyer and any other person
may conclusively and absolutely rely, without inquiry, upon any action
of the Sellers' Representative on behalf of the Sellers in all matters
in which it has been granted authority pursuant to this Section. The
Sellers' Representative shall act for the Sellers in all matters set
forth in this Agreement. All actions, decisions and instructions of the
Sellers' Representative taken, made or given pursuant to the authority
granted to the Sellers' Representative pursuant to this Section shall
be final, conclusive and binding upon all Sellers and all actions,
decisions and instructions of the Sellers' Representative taken, made
or given pursuant to the authority granted to such Sellers'
Representative pursuant to this Section shall be conclusive and binding
upon all individual Sellers. Buyer, its officers, directors, employees,
agents and affiliates shall be able to rely exclusively on the
instructions, decisions and actions of the Sellers' Representative.
(e) The Sellers' Representative shall not be liable to the
Sellers for the performance of any act or the failure to act so long as
he acted or failed to act in good faith in what he reasonably believed
to be the scope of his authority and for a purpose which he reasonably
believed to be in the best interests of the Sellers.
(f) The Sellers' Representative shall have the exclusive power
to waive any closing condition and to assert any claim of any Seller
against Buyer alleged to arise under this Agreement, the Member Notes,
the Warrants, or the Registration Rights Agreement or to waive any
breach or default under the foregoing agreements. No Seller may pursue
a remedy against Buyer or any affiliate of Buyer with respect to this
Agreement, the transactions contemplated hereby, the Member Note, the
Warrants, or the Registration Rights Agreement except by action of
Sellers' Representative or on the Seller's behalf. Sellers acknowledge
that apart from actions by Sellers' Representative on their behalf,
they shall have no right to bring legal action against Buyer for claims
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arising under this Agreement or the transactions contemplated hereby or
under the Member Note, the Warrants, or the Registration Rights
Agreement.
9.9 RELEASE.
(a) Effective upon the execution of this Agreement, Sellers
hereby irrevocably waive, release and discharge the Company from any
and all liabilities and obligations of Company to Sellers, whether in
their capacity as the Sellers hereunder, as member, manager, officer,
director or employee of the Company or otherwise, including, without
limitation, in respect of rights of contribution or indemnification, in
each case whether absolute or contingent, liquidated or unliquidated,
and whether arising at law or equity, from the beginning of time until
the Closing, and Sellers hereby covenant and agree that they will not
seek to recover any amounts in connection therewith or thereunder from
the Company. The Release provided herein shall in no way limit the
obligation of the Buyer to the Sellers following Buyer's acquisition of
the Company, however, it is understood that this sentence will in no
way limits Buyer's indemnification rights under this Agreement.
(b) Sellers acknowledge that there is a risk that, subsequent
to the execution of this Agreement or after the Closing, Sellers will
discover, incur or suffer claims which were unknown or unanticipated at
the time this Agreement was executed and which, if known by Sellers on
the date of this Agreement, may have materially affected the Sellers'
decision to enter into this Agreement. The Sellers acknowledge and
agree that, by reason of entering into this Agreement, the Sellers, as
the case may be, are assuming the risk of unknown or unanticipated
claims released in this SECTION 9.9. WITH RESPECT TO SUCH MATTERS, THE
SELLERS HEREBY EXPRESSLY WAIVE THE BENEFIT OF SECTION 1542 OF THE
CALIFORNIA CIVIL CODE OR ANY SIMILAR STATUTE IN ANY OTHER JURISDICTION.
SECTION 1542 OF THE CALIFORNIA CIVIL CODE PROVIDES AS FOLLOWS:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR
DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF
EXECUTING THE RELEASE, WHICH, IF KNOWN BY HIM, MUST HAVE
MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.
(c) It is the intention of the Parties that the foregoing
releases shall be as broad and general as the law permits and that
these releases shall be effective as of the Closing.
9.10 NO CONTRIBUTION. Anything to the contrary herein notwithstanding,
Sellers shall not have any right to seek any indemnification or contribution
from or remedy against the Company whether arising prior to or after the Closing
Date in respect of any breach of any representation or warranty by the Company
or the failure of the Company to comply with any covenant or agreement to be
performed by the Company on or prior to the Closing Date and Sellers hereby
waive any such claim they may have against the Company with respect thereto
whether at law, in equity or otherwise.
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ARTICLE 10
TERMINATION
-----------
10.1 TERMINATION.
(a) This Agreement may be terminated at any time prior to the
Closing:
(i) by mutual written consent of Buyer and Sellers;
or
(ii) by either Buyer or Sellers if the other Party is
in material breach of any representation, warranty or covenant
set forth in this Agreement and such breach, if capable of
cure, is not cured within thirty (30) days after written
notice thereof to such other Party.
(b) If the Closing has not occurred on the sooner of October
15, 2005 and on the sixtieth (60th) day after the Milestone Date unless
otherwise extended pursuant to SECTION 8.1 of this Agreement, this
Agreement will be terminated.
10.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement as provided above, this Agreement shall forthwith become void, and
there shall be no liability on the part of Sellers or Buyer. Notwithstanding the
foregoing, this SECTION 10.2 shall not release (a) any party from liability
resulting from a beach by such party under this Agreement, or (b) any party from
its obligations under SECTIONS 11.1, 11.2, 11.8, 11.9(A), 11.10, 12.2, 12.3,
12.6 AND 12.10 of this Agreement.
ARTICLE 11
ADDITIONAL AGREEMENTS
---------------------
11.1 PRESS RELEASE AND ANNOUNCEMENTS. Except to the extent required by
law, in which case prior notice shall be given to the other Party, no press
release related to this Agreement or the transaction contemplated hereby, or
other announcements to the employees, customers or suppliers of the Company
shall be issued prior to the Closing without the joint approval of Buyer and the
Sellers' Representative, which approval will not be unreasonably withheld,
conditioned or delayed.
11.2 CONFIDENTIALITY BY BUYER. Prior to the Closing, Buyer shall not
disclose any financial or other information regarding the Company without
Sellers' Representative's express, prior written consent as to the exact
content, form, location and extent of each such disclosure, which consent will
not be unreasonably withheld, delayed or conditioned. Notwithstanding anything
to the contrary contained in this Agreement, but subject to SECTION 11.10
hereof, Buyer and its Affiliates shall have the right to use and disclose such
information required in Form 8K and such filings as may be required of Buyer in
its capacity as a public company.
11.3 REMITTANCES. All remittances, mail and other communications
relating to the Company received by Sellers at any time after the Closing Date
shall be immediately turned over to Buyer.
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11.4 COOPERATION TO OBTAIN CONSENTS. From the date of this Agreement
through the Closing Date, the Parties shall consult and cooperate with each
other and use commercially reasonable efforts to (a) obtain all required
governmental and third party consents, (b) make any required filings or
submissions with governmental authorities, and (c) cause the conditions
precedent to Closing set forth in SECTION 6.1 and SECTION 7.1 to be satisfied,
all as may be necessary for the consummation of the Closing and the transactions
contemplated by this Agreement.
11.5 TAX MATTERS.
(a) Sellers, Buyer, and the Company shall, unless prohibited
by applicable law, cause the taxable period of the Company to end as of
the date preceding the Closing Date. For purposes of this Agreement,
Taxes incurred by the Company with respect to a taxable period that
includes but does not end on the Closing Date, shall be allocated to
the portion of the period ending on the date preceding the Closing Date
(a) except as provided in (b) and (c) below, to the extent feasible, on
a specific identification basis, according to the date of the event or
transaction giving rise to the Tax, and (b) except as provided in (c)
below, with respect to periodically assessed ad valorem Taxes and Taxes
not otherwise feasibly allocable to specific transactions or events, in
proportion to the number of days in such period occurring before the
Closing Date compared to the total number of days in such taxable
period, and (c) in the case of any Tax based upon or related to income
or receipts, in an amount equal to the Tax which would be payable if
the relevant taxable period ended on the date preceding the Closing
Date. Any credits relating to a taxable period that begins before and
ends after the Closing Date shall be taken into account as though the
relevant taxable period ended on the date preceding the Closing Date.
All determinations necessary to give effect to the foregoing
allocations shall be made in a manner consistent with prior practices
of the Company.
(b) Sellers shall prepare all Tax Returns for taxable periods
ending on or prior to the Closing Date. After the Closing, Sellers
shall, and shall cause their Affiliates to, cooperate fully with Buyer
in the preparation of all Tax Returns relating to periods beginning
before, but ending after, the Closing Date and shall provide or cause
to be provided to Buyer any records and other information reasonably
requested by Buyer in connection therewith as well as reasonable access
to, and the reasonable cooperation of, Sellers' accountant. Sellers
shall be responsible for and shall have the right to control any Tax
investigation, audit or other proceeding related to the Company for
periods ending on or prior to the Closing Date. Sellers shall use
commercially reasonable efforts to resolve any such Tax investigation,
audit or other proceeding. Buyer and the Company shall provide Sellers
with any information or correspondence provided to Buyer and the
Company by any taxing authority with respect to any taxable period
ending before the Closing Date. After the Closing, Sellers shall, and
shall cause their Affiliates to, cooperate fully with Buyer in
connection with any Tax investigation, audit or other proceeding
relating to either of the Business for any periods ending after the
Closing Date. Any information obtained pursuant to this SECTION 11.5(B)
or pursuant to any other Section hereof providing for the sharing of
information or the review of any Tax Return or other schedule relating
to Taxes shall be subject to the terms of the Confidentiality
Agreement.
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11.6 EMPLOYEE MATTERS. Primary Sellers hereby agree that they will use
commercially reasonable efforts prior to and through Closing to keep all
employees of the Company as employees.
11.7 FURTHER ASSURANCES. Each Party agrees to execute and deliver such
further documents and instruments and to take such further actions after the
Closing as may be necessary or desirable and reasonably requested by the other
Party to give effect to the transactions contemplated by this Agreement.
11.8 ARBITRATION. Except as otherwise provided in this Agreement, any
controversy or claim arising out of or relating to this Agreement or the breach
thereof shall be settled by binding arbitration in Orange County, California.
(a) JUDICIAL ARBITRATION AND MEDIATION SERVICES. The
arbitration shall be administered by Judicial Arbitration and Mediation
Services ("JAMS") in its Orange County office.
(b) ARBITRATOR. The arbitrator shall be chosen by mutual
agreement between Buyer and the Sellers' Representative. The arbitrator
will agree to comply with the JAMS Comprehensive Arbitration Rules and
Procedures (including without limitation any and all of the time
deadlines governing the arbitrator's conduct set forth therein) and the
term of this SECTION 11.8.
(c) PROVISIONAL REMEDIES AND APPEALS. Each of the Buyer and
the Sellers' Representative reserve the right to file with a court of
competent jurisdiction a suit for equitable relief of any sort,
including without limitation an application for temporary or
preliminary injunctive relief, writ of attachment, writ of possession,
temporary protective order, reformation, rescission, specific
performance and/or appointment of a receiver, on the grounds that the
arbitration award to which the applicant may be entitled may be
rendered in effectual in the absence of such relief, or in the event
the monetary damages are insufficient to make the damaged party whole.
(d) ENFORCEMENT OF JUDGMENT. Judgment upon the award rendered
by the arbitrator may be entered in any court having jurisdiction
thereof. The award of the arbitrator shall be binding, final and
nonappealable.
(e) DISCOVERY. The arbitrator shall set a limited time period
and establish procedures designed to reduce the cost and time for
discovery while allowing the Parties an opportunity, adequate in the
sole judgment of the arbitrator, to discover relevant information from
the opposing Parties about the subject matter of the dispute. The time
periods and the procedures chosen by the arbitrator shall apply equally
to each Party.
(f) CONSOLIDATION. Any arbitration hereunder may be
consolidated by JAMS with the arbitration of any other dispute arising
out of or relating to the same subject matter when the arbitrator
determines that there is a common issue of law or fact creating the
possibility of conflicting rulings by more than one arbitrator.
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(g) POWER AND AUTHORITY OF ARBITRATOR. The arbitrator shall
not have any power to alter, amend, modify or change any of the terms
of this Agreement, nor to grant any remedy which is either prohibited
by the terms of this Agreement, or not available in a court of law.
(h) GOVERNING LAW. All questions in respect of procedure to be
followed in conducting the arbitration, as well as the enforceability
of the agreement of the parties to arbitrate pursuant to this SECTION
11.8 which may be resolved by state law shall be resolved according to
the law of the State of California. Any action brought to enforce the
provisions of this Section shall be brought in the Orange County
Superior Court. All other questions in respect of this Agreement,
including, but not limited to, the interpretation, enforcement of this
Agreement (other than the right to arbitrate), and the rights, duties
and liabilities of the parties to this Agreement shall be governed by
the laws of the State of California.
(i) COSTS. The costs of the arbitration, including any JAMS
administration fees and any arbitrator's fees, and costs of the use of
facilities during the arbitration hearings, shall be borne equally by
the parties.
(j) ATTORNEYS' FEES. If a party to this Agreement shall bring
any action, suit, counterclaim, appeal, arbitration, or mediation for
any relief against the other parties, declaratory or otherwise, to
enforce the terms hereof or to declare rights hereunder (referred to
herein as an "ACTION"), the non-prevailing party in such Action shall
pay to the prevailing party in such Action a reasonable sum for the
prevailing party's attorneys' fees and expenses (at the prevailing
party's attorneys' then-current rates, as increased from time to time
by the giving of advance written notice by such counsel to such party)
incurred in prosecuting or defending such Action and/or enforcing any
judgment, order, ruling or award (referred to herein as a "DECISION"),
granted therein, all of which shall be deemed to have accrued from the
commencement of such Action, and shall be paid whether or not such
Action is prosecuted to a Decision. Any Decision entered into in such
Action shall contain a specific provision providing for the recovery of
attorneys' fees and expenses incurred in enforcing such Decision. The
court or arbitrator may fix the amount of reasonable attorneys' fees
and expenses upon the request of any party. For purposes of this
Section, attorneys' fees shall include, without limitation, fees
incurred in connection with (1) post-judgment motions and collection
actions, (2) contempt proceedings, (3) garnishment, levy and debtor and
third party examination, (4) discovery and (5) bankruptcy litigation.
11.9 CONFIDENTIALITY, TRADENAMES.
(a) CONFIDENTIALITY BY SELLERS. Each of the Sellers shall
treat and hold as confidential any information concerning the business
and affairs of the Company or Buyer that is not already generally
available to the public (the "CONFIDENTIAL INFORMATION"), refrain from
using any of the Confidential Information except in connection with
this Agreement. In the event that any Seller is requested or required
(by oral question or request for information or documents in any legal
proceeding, interrogatory, subpoena, civil investigative demand, or
similar process) to disclose any Confidential Information, it shall
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notify Buyer promptly of the request or requirement so that the Buyer
may seek an appropriate protective order or waive compliance with the
provisions of this SECTION 11.9(A). If, in the absence of a protective
order or the receipt of a waiver hereunder, a Seller is, on the advice
of counsel, compelled to disclose any Confidential Information to any
tribunal or else stand liable for contempt, it may disclose the
Confidential Information to the tribunal; provided that it shall use
its best efforts to obtain, at the request and expense of the Buyer, an
order or other assurance that confidential treatment shall be accorded
to such portion of the Confidential Information required to be
disclosed as the Buyer shall designate. In the event of the termination
of this Agreement, Sellers shall immediately return to Buyer any
Confidential Information which is in the form of documentation.
(b) TRADE NAMES. The Sellers shall not use or permit any of
their Affiliates to use the "Phoenix Bio Industries" name (or any other
trademarks, service marks, trade dress, trade names, logos, or
corporate names used by the Company) or any names or symbols
confusingly similar thereto in any manner anywhere in the world after
Closing.
(c) REMEDY FOR BREACH. The Sellers acknowledge and agree that
in the event of a breach of any of the provisions of this SECTION 11.9,
monetary damages may not constitute a sufficient remedy. Consequently,
in the event of any such breach, the Company, the Buyer and/or their
respective successors or assigns may, in addition to other rights and
remedies existing in their favor, apply to any court of law or equity
of competent jurisdiction for specific performance and/or injunctive or
other relief in order to enforce or prevent any violations of the
provisions hereof, in each case without the requirement of posting a
bond or proving actual damages.
(d) NO TRADE. Each Seller agrees that, without the prior
written consent of the Board of Directors of Buyer, until the earlier
of such time as this transaction is terminated and this transaction is
publicly disclosed by the Company, neither any Seller nor any of
Sellers' affiliates (as such term is defined in Rule 12b-2 of the
Securities Exchange Act of 1934, as amended), acting alone or as part
of a group, will: (a) acquire, propose, or offer to acquire, or agree
to acquire, directly or indirectly, by purchase or otherwise, any
securities or direct or indirect rights to acquire any securities of
Buyer, or (b) sell any securities of Buyer. It is understood and agreed
that no failure or delay by Buyer in exercising any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power or privilege
hereunder. It is further understood and agreed that money damages would
not be a sufficient remedy for any breach of this SECTION 11.9(D) by
any Seller or any Seller representative and that Buyer shall be
entitled to equitable relief, including injunction and specific
performance, as a remedy for any such breach. Such remedies shall not
be deemed to be the exclusive remedies for a breach of this SECTION
11.9(D) but shall be in addition to all other remedies available at law
or in equity. In the event of litigation relating to this SECTION
11.9(D), if a court of competent jurisdiction determines that you or
any of your representatives have breached this SECTION 11.9(D), then
such Seller shall be liable and pay to Buyer the legal fees incurred by
Buyer in connection with such litigation, including any appeal
therefrom.
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11.10 SEC REPORTING COOPERATION. In connection with the reporting
requirements of Buyer, Sellers agree to assist Buyer and its Affiliates (at
Buyer's sole cost and expense) prior to the Closing Date, to enable Buyer to
prepare required disclosures (including financial statements and related notes
in compliance with federal securities Laws), and to enable the Company's
accountants to consent to the inclusion of such financial statements in filings
with the Securities and Exchange Commission including, but not limited to, a
subsequent annual, quarterly or other report, as applicable. Whether or not the
Closing occurs or this Agreement is terminated (except for a termination on
account of a default by Buyer hereunder), the Sellers shall pay up to $10,000
for all accounting fees and related expenses incurred in connection with the
preparation of SEC compliant financial statements and related notes for the
periods ending December 31, 2003, December 31, 2004 and as of the Closing Date.
The audited Financial Statements for December 31, 2003 and December 31, 2004
shall be delivered to Buyer by August 31, 2005 and the audited Statements as of
the Closing Date shall be delivered to Buyer no later than fifteen (15) days
thereafter.
11.11 LEGEND; TRANSFER OF MEMBER NOTES. Each Member Note will be
imprinted with a legend in substantially the following form:
PAYMENT WITH RESPECT TO THIS NOTE IS SUBJECT TO CERTAIN SUBORDINATION
PROVISIONS SET FORTH IN SECTION ____ HEREIN, AND IS SUBJECT TO CERTAIN
OFFSET PROVISIONS SET FORTH IN A MEMBERSHIP INTEREST PURCHASE AGREEMENT
DATED AS OF ________________, AMONG THE ISSUER OF THIS NOTE AND THE
PERSON TO WHOM THIS NOTE WAS ORIGINALLY ISSUED (THE "PURCHASE
AGREEMENT"). THE TRANSFER OF THIS NOTE IS SUBJECT TO CERTAIN
RESTRICTIONS SET FORTH IN THE PURCHASE AGREEMENT. THE ISSUER OF THIS
NOTE WILL FURNISH A COPY OF THESE PROVISIONS TO THE HOLDER HEREOF
WITHOUT CHARGE UPON WRITTEN REQUEST. THIS NOTE WAS ORIGINALLY ISSUED ON
[___________________] AND HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY COMPARABLE STATE SECURITIES LAW.
Each holder desiring to transfer a Member Note first must furnish to
the Company a (i) written opinion from counsel reasonably satisfactory to the
company in form, substance, and by reason of such counsel's experience to the
effect that the holder may transfer such Member Note as desired without
registration under the Securities act or under any applicable state securities
laws; and (ii) written undertaking executed by the desired transferee reasonably
satisfactory to the Company in form and substance agreeing to be bound by the
offset provisions and the restrictions on transfer contained herein.
11.12 NO SHOP. Until this Agreement is terminated by its terms, no
Seller shall (and no Seller shall cause or permit any agent or any other Person
acting on his, her or its behalf to), discuss or negotiate with any other Person
a possible sale of all or part of the Company's securities or assets (except for
dispositions of assets in the ordinary course of business), whether such
transaction takes the form of a sale of stock, merger, liquidation, dissolution,
reorganization, recapitalization, consolidation, sale of assets, or otherwise
(an "Acquisition Proposal"), or provide any information to any other Person
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concerning the Company (other than information which the Company provides to
other Persons in the ordinary course of business). The Sellers and their agents
and other Persons acting on their behalf (a) do not have any rights,
arrangement, or understanding with respect to any Acquisition Proposal (except
this Agreement), (b) shall cease and cause to be terminated any and all
discussions with third parties regarding any Acquisition Proposal, and (c) shall
promptly notify the Buyer if any Acquisition Proposal, or any inquiry or contact
with any person or entity with respect thereto, is made. Notwithstanding the
foregoing, Sellers Representatives of the Company shall be permitted in
connection with a proposed debt or equity financing for the Company which does
not involve a sale of securities in the Company but will result in such
financing source acquiring more than a thirty percent (30%) ownership interest
by value or voting control in the Company provided Buyer is given a right of
first refusal as hereinafter set forth. If the Company desires to initiate any
such financing then three (3) days written notice shall first be given to Buyer
during which period Buyer and Company will attempt to negotiate a mutually
agreeable financing for the Company. If an agreement is reached within said
three (3) day period Buyer and Company will thereafter close such acquisition
within twelve (12) days of the date of such agreement. If an agreement is not
reached within said three (3) day period (or if the financing does not close for
a reason other than a default on the part of the Company), the Company may,
subject to the terms of this SECTION 11.12, proceed to obtain such financing
from independent third parties, but shall not be entitled to undertake such
financing with a third party for a price less than the equivalent value of the
price of refinancing which may have been offered by Buyer in writing. During the
aforesaid three (3) day period the Company shall not directly or indirectly
initiate any discussions with any third parties.
ARTICLE 12
MISCELLANEOUS
-------------
12.1 AMENDMENT AND WAIVER. This Agreement may be amended, and any
provision of this Agreement may be waived; provided that any such amendment or
waiver shall be binding on the Party against whom the amendment is being
asserted only if such amendment or waiver is set forth in a writing executed by
such Party against whom the amendment is being asserted and then only to the
specific purpose, extent and instance so provided. Not withstanding the
foregoing any one or more of the Principals may enter into an amendment of this
agreement, or any other agreements related to this transaction, for the purpose
to carry out the intent of the parties.
12.2 NOTICES. All notices, demands and other communications to be given
or delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given when personally delivered, when
mailed by certified mail, return receipt requested, when sent by facsimile with
confirmation of receipt received, or when delivered by overnight courier with
executed receipt. Notices, demands and communications to Sellers or Buyer shall,
unless another address is specified in writing in accordance herewith, be sent
to the address indicated below:
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Notices to Sellers: C/O - Western Milling
Attn: Kevin Kruse or Ejnar Knudsen
31120 Nutmeg Road
PO Box 1029
Goshen, CA 93227
Tel: (559) 302-1000
Fax: (559) 380-2800
Notices to Buyer: Pacific Ethanol, Inc.
5711 N. West Avenue
Fresno, CA 93711
Attn: Neil Koehler, Chairman and CEO
Tel: (530) 750-3017
Fax: (530) 309-4172
Pacific Ethanol, Inc.
5711 N. West Avenue
Fresno, CA 93711
Attn: Ryan Turner, Director and COO
Tel: (559) 435-1771 ext. 107
Fax: (559) 435-1478
with a copy to: Rutan & Tucker, LLP
611 Anton Blvd., Suite 1400
Costa Mesa, CA 92626
Attn: George J. Wall, Esq.
Tel: (714) 662-4673
Fax: (714) 546-9035
12.3 ASSIGNMENT. This Agreement and all of the provisions hereof shall
be binding upon and inure to the benefit of the Parties and their respective
successors and assigns. Neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assignable by either Party without the prior
written consent of the other Party; provided, however, that Buyer may assign in
whole its right, title and interest under this Agreement to any of its
Affiliates and such assignment shall release Buyer (but not such assignee) from
its indemnification and other obligations hereunder.
12.4 CAPTIONS. The captions used in this Agreement are for convenience
of reference only and do not constitute a part of this Agreement and shall not
be deemed to limit, characterize or in any way affect any provision of this
Agreement, and all provisions of this Agreement shall be enforced and construed
as if no caption had been used in this Agreement.
12.5 COMPLETE AGREEMENT; SCHEDULES AND EXHIBITS. Each schedule and
exhibit delivered pursuant to the terms of this Agreement shall be in writing
and shall constitute a part of this Agreement, although schedules need not be
attached to each copy of this Agreement. This Agreement, together with such
schedules and exhibits, and the documents referred to herein contain the
complete agreement between the Parties and supersede any prior understandings,
agreements or representations by or between the Parties, written or oral, which
may have related to the subject matter hereof in any way.
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12.6 GOVERNING LAW. The Laws of the State of California, without regard
to conflict of law doctrines, govern all questions concerning the construction,
validity and interpretation of this Agreement and the performance of the
obligations imposed by this Agreement.
12.7 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. Documents will be deemed
as originals if received by facsimile copy.
12.8 THIRD PARTY BENEFICIARIES. Nothing in this Agreement is intended
or will be construed to entitle any person or entity, other than Buyer and
Sellers or their respective permitted transferees and assigns, to any claim,
cause of action, remedy or right of any kind.
12.9 SEVERABILITY. The validity, legality or enforceability of the
remainder of this Agreement will not be affected even if one or more of the
provisions of this Agreement will be held to be invalid, illegal or
unenforceable in any respect.
12.10 EXPENSES. Except as otherwise expressly set forth in this
Agreement, each Party shall, whether or not the transactions contemplated hereby
are consummated, pay all costs and expenses incurred by or on behalf of such
Party in connection with the negotiation, execution and Closing of this
Agreement and the transactions contemplated hereby and its investigation and
evaluation of the Membership Interests and the Company.
IN WITNESS WHEREOF, each of the Parties have caused this Agreement to
be duly executed by duly authorized individuals as of the Effective Date.
Counterpart Signatures Follow
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Execution of Membership Interest Purchase Agreement by Counterpart Signatures
-----------------------------------------------------------------------------
The undersigned hereby executes the Membership Interest Purchase Agreement dated
as of August 1st, 2005, between Pacific Ethanol Inc. and the members of Phoenix
Bio Industries, LLC.
BUYER
PACIFIC ETHANOL, INC.,
a Delaware Corporation
By: ____________________________________
Ryan Turner, Chief Operating Officer
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Execution of Membership Interest Purchase Agreement by Counterpart Signatures
-----------------------------------------------------------------------------
I (we) hereby execute the Membership Interest Purchase Agreement dated as of
August 1st, 2005, between Pacific Ethanol Inc. and the members of Phoenix Bio
Industries, LLC.
Signature of Member: ___________________________
Print Name of Member: __________________________
OR
Signature of Member other than an Individual
Entity: ________________________________________
Signature: _____________________________________
Print Name: ____________________________________
Title: _________________________________________
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EXHIBIT "A"
-----------
DEFINITIONS
-----------
A. CERTAIN MATTERS OF CONSTRUCTION. For purposes of this Agreement, in
addition to the definitions referred to or set forth in this EXHIBIT "A":
1. Reference to a particular Section of this Agreement will
include all its subsections.
2. The words "PARTY" and "PARTIES" will refer to each of the
Sellers and Buyer.
3. Definitions will apply to both the singular and plural
forms of the terms defined, and references to the masculine, feminine
or neuter gender will include each other gender.
4. All references in this Agreement to any Exhibit or Schedule
will, unless the context otherwise requires, be deemed to be a
reference to an Exhibit or Schedule, as the case may be, to this
Agreement, all of which are made a part of this Agreement.
B. DEFINITIONS.
"ACCOUNTING FIRM" is defined in SECTION 2.3(F).
"AFFILIATE" means an individual or entity that directly or
indirectly, through one or more intermediaries, controls, or is
controlled by, or is under common control with, a specified individual
or entity. For purposes of this definition, "control" shall include,
without limitation, the exertion of significant influence over an
individual or entity and shall be conclusively presumed as to any fifty
percent (50%) or greater equity interest.
"BENEFIT PLAN" is defined in SECTION 3.14(A).
"BUSINESS DAY" means any day other than a Saturday, Sunday, or
day on which commercial banks are authorized by law to close in the
City of Sacramento, California.
"BUSINESS EMPLOYEES" is defined in SECTION 3.13.
"BUYER" is defined in the preamble hereof and shall also
include any Affiliate of the Buyer that becomes an assignee of the
Agreement pursuant to the terms of SECTION 12.3.
"BUYER INDEMNIFIED PARTIES" is defined in SECTION 9.1.
"CAP" is defined in SECTION 9.4(C).
EXHIBIT "A"
"CHARTER DOCUMENTS" shall mean, as applicable, the specified
entity's (i) certificate or articles of incorporation or formation or
other charter or organizational documents, and (ii) bylaws or operating
agreement, each as from time to time in effect.
"CLAIM" means any action or proceeding instituted by any third
party, the liabilities for which are Indemnifiable Losses.
"CLOSING" is defined in SECTION 8.1.
"CLOSING BALANCE SHEET" is defined in SECTION 2.3(C).
"CLOSING DATE" is defined in SECTION 8.1.
"COBRA" means Section 4980B of the Code, Part 6 of Title I of
ERISA, similar provisions of state law and applicable regulations
relating to any of the foregoing.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPANY INTELLECTUAL PROPERTY" is defined in SECTION 3.18.
"CONFIDENTIALITY AGREEMENT" is defined in SECTION 11.2.
"CONTRACTS SCHEDULE" means SCHEDULE 3.10.
"EFFECTIVE DATE" is the date on which Buyer and Seller
exchange fully executed copies of this Agreement.
"EFFECTIVE TIME" is defined in SECTION 8.1.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in
Section 3(2) of ERISA.
"EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in
Section 3(1) of ERISA.
"ENCUMBRANCE" means any mortgage, charge, option, right to
acquire, pledge, lien, security interest, attachment or other
encumbrance, including any agreement to create any of the foregoing.
"ENVIRONMENTAL LAW" means all applicable Laws pertaining to
the environment, Hazardous Materials, pollution or occupational safety
and health, and includes without limitation the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as
amended by the Superfund Amendments and Reauthorization Act of 1986, 42
U.S.C. Sections 9601 et. seq.
("CERCLA"), Solid Waste Disposal Act, as amended by the
Resource Conservation and Recovery Act of 1986 and Hazardous and Solid
Waste Amendments of 1984, 42 U.S.C. Sections 6901 et seq., the Oil
Pollution Act of 1990, 33 U.S.C. Sections 2701 et seq. and implementing
state Laws promulgated thereunder.
EXHIBIT "A"
"ENVIRONMENTAL PERMITS" means all material permits, approvals,
certificates and licenses required under any Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ERISA AFFILIATE" means, with respect to any Person, each
other Person which, within any time during the past six (6) years, is
or was required to be treated as a single employer (under Section 414
of the Code or Section 4001(b) of ERISA), or treated as a controlled
group member or entity under common control (under Sections
302(f)(6)(B) or 4001(a)(14) of ERISA), with such Person or its
predecessor or any of their current or former Affiliates.
"EXPIRATION DATE" is defined in SECTION 9.5.
"FINANCIAL STATEMENTS" is defined in SECTION 3.6.
"FOSTER" is defined in the Preamble of this Agreement.
"FUNDED INDEBTEDNESS" means (i) all indebtedness for money
borrowed from others (whether in the form of direct loans or capital
leases) and purchase money indebtedness of the Company, (ii) interest
expense accrued but unpaid, and all prepayment premiums, on or relating
to any of such indebtedness, (iii) indebtedness of the type described
in clause (i) above guaranteed by the Company, and (iv) any purchase
money indebtedness for premiums for insurance maintained by the Company
to the extent the outstanding balance thereof exceeds the amortized
value of the premiums.
"GROUND LEASE" means Ground Lease dated as of April 15, 2004
by and between Western Milling, LLC and Phoenix Bio Industries, LLC.
"HAZARDOUS MATERIAL" means any substance, pollutant,
contaminant, radiation or chemical which has been determined under
applicable Environmental Laws to be hazardous to human health or safety
or the environment including, without limitation, all of those
substances which are listed or defined as "pollutants," "contaminants,"
"hazardous materials," "hazardous wastes," "hazardous substances,"
"toxic substances," "radioactive materials," or other similar
designations pursuant to Environmental Laws including, but not limited
to, asbestos, petroleum and any petroleum products and polychlorinated
biphenyls.
"INDEMNIFIED PARTY" means a Buyer Indemnified Party or a
Seller Indemnified Party, as applicable.
"INDEMNIFYING PARTY" means the Party obligated to indemnify an
Indemnified Party.
"INDEMNIFIABLE LOSSES" means any Loss for or against which any
Party is entitled to indemnification under this Agreement.
EXHIBIT "A"
"INSURANCE POLICIES" is defined in SECTION 3.10(B).
"INTELLECTUAL PROPERTY" means all trademarks and trade names,
trademark and trade name registrations, service marks and service mark
registrations, copyrights and copyright registrations, patent and
patent applications and all material licenses and other agreements and
information relating to technology, know-how, software or processes
used in or otherwise necessary to the Business, whether proprietary to
the Company or licensed to or otherwise authorized for use by others.
"IRS" means the Internal Revenue Service or any successor
agency thereto.
"JAMS" is defined in SECTION 11.8.
"LAW" means any federal, state or local law, statute, rule or
regulation and any resolution, ruling, ordinance, enactment, judgment,
order, decree, directive or other requirement having the force of law,
including any official interpretation of any of the foregoing, of or by
any governmental authority, as in effect from time to time.
"LEASE" and "LEASES" are defined in SECTION 3.8(A).
"LEASES SCHEDULE" means SCHEDULE 3.8.
"LIABILITIES SCHEDULE" means SCHEDULE 3.4(A).
"MATERIAL ADVERSE CHANGE" means any change or changes that are
material and adverse to the Company, Business, operations, properties,
assets, income, cash flow, liabilities, working capital or financial
condition, other than: (i) any change or effect resulting from or
relating to changes in or developments in the national or local
economy, financial markets, insurance markets, commodity markets or
currency markets, (ii) any change or effect resulting from general
changes in the national or local wholesale or retail markets for
ethanol fuel purchased or sold by Company, (iii) any change or effect
resulting from any changes or potential changes to applicable
governmental regulations, (iv) any change or effect resulting from or
relating generally to the ethanol or alternative fuel industry, (v) any
reductions in the cash flow multiple generally being paid for ethanol
based operations in international, national or local markets.
"MATERIAL CONTRACTS" is defined in SECTION 3.10(B).
"MEMBER DEBT" is defined in SECTION 8.2(D).
"NET WORKING CAPITAL" is defined in SECTION 2.3(A).
"PARTY" or "PARTIES" means collectively the Sellers and the
Buyer.
"PENSION PLAN" is defined in SECTION 3.14(A).
"PERMITS" is defined in SECTION 3.15.
EXHIBIT "A"
"PERSON" means any individual, person, limited liability
company, partnership, trust, unincorporated organization, corporation,
association, joint stock company, business, group, government,
government agency or authority or other entity.
"PERSONAL PROPERTY" is defined in SECTION 3.8(B).
"PROHIBITED TRANSACTION" has the meaning set forth in ERISA
Section 406 and Section 4975 of the Code.
"PURCHASE PRICE" is defined in SECTION 2.1.
"SELLER INDEMNIFIED PARTIES" is defined in SECTION 9.2.
"SELLERS' REPRESENTATIVE" is defined in SECTION 9.8.
"SUBSIDIARY" means any entity of which the Company (or other
specified entity) owns directly or indirectly through a Subsidiary, a
nominee arrangement or otherwise at least a majority of the outstanding
capital stock (or other shares of beneficial interest) entitled to vote
generally.
"TAX" means any foreign, federal, state, county or local
income, sales and use, excise, franchise, real and personal property,
transfer, gross receipt, capital stock, production, business and
occupation, disability, employment, payroll, severance or withholding
tax or charge imposed by any governmental entity, any interest and
penalties (civil or criminal) related thereto or to the nonpayment
thereof, and any Loss in connection with the determination, settlement
or litigation of any Tax liability.
"TAX RETURN" means a report, return or other information
supplied to or required to be supplied to a governmental entity with
respect to Taxes and shall be treated as a Tax Return of each entity
included or required to be included in a return filed on a combined,
consolidated, unitary or similar basis.
"TERMINATION DATE" means the date on which this Agreement is
terminated pursuant to SECTION 10.1 hereof.
"THRESHOLD" is defined in SECTION 9.4(A).
"TRANSACTION DOCUMENTS" is defined in SECTION 8.3.
"WELFARE PLAN" is defined in SECTION 3.14(A).
EXHIBIT "A"
EXHIBIT "B"
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ASSIGNMENT OF LIMITED LIABILITY COMPANY
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MEMBERSHIP INTERESTS
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EXHIBIT "B"
EXHIBIT "C"
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MEMBER NOTES
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EXHIBIT "C"
EXHIBIT "D"
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WARRANTS
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EXHIBIT "D"
EXHIBIT "E"
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OPINION OF SELLER'S COUNSEL
---------------------------
Pacific Ethanol, Inc.
5711 N. West Avenue
Fresno, CA 93711
Ladies and Gentlemen:
We have acted as special counsel to [Selling Members] (together,
"Sellers"), in connection with the sale of all membership interests ("Membership
Interests") of Phoenix Bio Industries, LLC (the "Company") pursuant to that
certain Membership Interest Purchase Agreement (the "Agreement") of even date
herewith. This opinion is being furnished to you pursuant to Section 8.3(a) of
the Agreement. All capitalized terms used but not otherwise defined herein shall
have the respective meanings ascribed to such terms in the Underwriting
Agreement.
We have examined the following documents:
(a) the Agreement and any amendment thereto;
(b) the Power of Attorney;
(c) the Assignment of Membership Interest;
(d) Members' certificates (the "Certificates") executed by the
Sellers dated the date hereof and a form of which is provided to you
concurrently herewith, which sets forth various factual representations
including a listing of agreements or instruments to which the Sellers
are bound and which are material to them ("Material Agreements"); and
(e) such other documents, records and papers as we have deemed
necessary and relevant as a basis for this opinion.
Our opinions are governed by and limited to the internal laws of the
State of California and the federal laws of the United States of America,
without regard to choice of law or conflicts of law principles. We disclaim any
opinion as to the laws of any other jurisdiction. The Agreement and any
amendment thereto, the Power of Attorney, and the Assignment of Membership
Interest are hereinafter collectively referred to as the "Opinion Documents".
In rendering our opinions set forth below, we have assumed the
authenticity of all documents submitted to us as originals, the genuineness of
all signatures, and the conformity to authentic originals of all documents
submitted to us as copies. We have also assumed the legal capacity for all
purposes relevant to this letter of all natural persons and, with respect to all
EXHIBIT "E"
parties to agreements or instruments relevant to this letter other than the
Sellers, that (i) such parties are duly organized, validly existing and in good
standing under the laws of their respective jurisdictions of incorporation or
association, (ii) such parties had the requisite power and authority (corporate
or otherwise) to execute, deliver and perform such agreements or instruments,
(iii) such agreements or instruments have been duly authorized by all requisite
action (corporate or otherwise) and duly executed and delivered by such parties,
(iv) such agreements or instruments are the valid, binding and enforceable
obligations of such parties, (v) each of the parties has complied with all
applicable licensing requirements and has qualified to do business, as its
activities may require, under the laws of the State of California and the laws
of the United States, (vi) the representations and warranties contained in the
Opinion Documents are true and correct, and (vii) each of the parties has
received all of the documents that each is required to receive under the Opinion
Documents. We have not independently checked or verified the accuracy or
reasonableness of any assumption made by us in this letter.
As to matters of fact relevant to the opinions expressed in this
letter, we have relied, without further inquiry, solely on the Certificate and
all representations and warranties in the Opinion Documents. We have not
verified the validity, accuracy or reasonableness of any of the factual
representations and warranties contained in the Opinion Documents or of any of
the representations made to us in the Certificate.
Where statements or opinions in this letter are made to or qualified by
our knowledge or our awareness, our knowledge or awareness is deemed to be
limited to the actual present knowledge of those attorneys in our firm who have
devoted substantial substantive attention to the rendering of services to the
Sellers in connection with the Opinion Documents and the transactions
contemplated thereby. Our knowledge or awareness for these purposes does not
include knowledge or awareness that might be obtained by a review of our firm's
files or a canvassing of attorneys in our firm other than those who have devoted
substantial substantive attention to the rendering of services to the Sellers in
connection with the representation described in the introductory paragraph of
this opinion letter. All references in this letter to our knowledge or awareness
are subject to this limitation. No inference concerning our knowledge of any
matters bearing on any such statement or opinion should be drawn from the fact
of our representation of the Sellers. With respect to our opinions in paragraph
1, we have not made any examination of the public records (including, without
limitation, the plaintiff or defendant indices of any state, federal or foreign
courts) or the Company's records.
The opinion set forth in paragraph 2 below is subject to, and we render
no opinion with respect to, the effect of the following:
[inserted by Sellers' Counsel]
Based upon the foregoing and such consideration of matters of law as we
deemed to be relevant, and subject to the qualifications and assumptions set
forth herein, we are of the opinion that:
1. The execution, delivery and performance by the Sellers of the
Opinion Documents, to our actual knowledge, will not violate any California or
federal statute, judgment, decree, order, rule or regulation of any court or
governmental body having jurisdiction over any Seller or any of their
EXHIBIT "E"
properties; to our actual knowledge no approval, authorization, order or consent
of any court, regulatory body, administrative agency or other governmental body
is required for the execution and delivery of the Opinion Documents or the
consummation by the Sellers of the transactions contemplated by the Opinion
Documents, except such as have been obtained and are in full force and effect
under the Act and such as may be required under applicable Blue Sky laws.
2. The Opinion Documents have each been duly and validly authorized,
executed and delivered by each Seller, and each is a valid and binding agreement
of each Seller, enforceable against such Seller in accordance with its terms.
3. The execution, delivery and performance of the Option Documents by
the Sellers will not violate, result in a breach of or constitute a default
under the terms of any Material Agreement.
4. At the Closing the Buyer will acquire all of the rights of the
Sellers in the Membership Interests, free of any adverse claim including,
without limitation, adverse claims against the Sellers.
The opinions set forth herein are given as of the date hereof, are
expressly limited to the matters stated herein and no opinion is implied or may
be inferred beyond what is explicitly stated in this letter. We disclaim any
obligation to notify you or any other person or entity after the date hereof if
any change in fact and/or law should change our opinion with respect to any
matter on which we are expressing an opinion herein.
This letter is rendered solely for your benefit and may not be relied
upon by any other person or entity. Copies of this letter may not be circulated
or furnished to any person or entity and this letter may not be referred to in
any report or document furnished to any person or entity, without our prior
written consent.
Respectfully submitted,
EXHIBIT "E"
SCHEDULE 9.1
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Not applicable at this time
SCHEDULE 9.1