SECURITIES PURCHASE AGREEMENT by and among SOLOMON TECHNOLOGIES, INC., INTEGRATED POWER SYSTEMS LLC, POWER DESIGNS INC., THE VANTAGE PARTNERS LLC, TECHNIPOWER LLC, and the other parties listed on the signature pages hereto
Exhibit
10.41
by
and
among
SOLOMON
TECHNOLOGIES, INC.,
INTEGRATED
POWER SYSTEMS LLC,
POWER
DESIGNS INC.,
THE
VANTAGE PARTNERS LLC,
TECHNIPOWER
LLC,
and
the
other parties listed on the signature pages hereto
Dated
as
of August 17, 2006
SECURITIES
PURCHASE AGREEMENT (the
“Agreement”),
dated
as of August 17, 2006, by and among
SOLOMON TECHNOLOGIES, INC.,
a
Delaware corporation (the “Purchaser”),
INTEGRATED
POWER SYSTEMS LLC,
a
Delaware limited liability company (“IPS”),
POWER
DESIGNS INC.,
a
Delaware corporation (“PDI”),
THE
VANTAGE PARTNERS LLC,
a
Connecticut limited liability company (“Vantage”;
together with IPS and PDI, the “Regular
Unit Holders”),
▇▇▇▇▇▇▇
▇. ▇▇▇▇▇▇, ▇▇,
a
resident of Wethersfield, Connecticut (“Intino”),
▇▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇▇▇▇,
a
resident of Farmington, Connecticut (“▇▇▇▇▇▇▇▇▇▇”)
and
▇▇▇▇▇▇▇
▇▇▇▇▇,
a
resident of Danbury, Connecticut (“▇▇▇▇▇”,
and
together with Intino and ▇▇▇▇▇▇▇▇▇▇, the “CAU
Holders”);
the
Regular Unit Holders and the CAU Holders are collectively referred to as the
“Members”
and
each individually, a “Member”),
each
of the holders of Warrants (as defined below) listed on the signature pages
hereto (the “Warrantholders”
and
each individually, a “Warrantholder”;
the
Members, together with the Warrantholders, are sometimes referred to herein
as
“Sellers”
and
each individually, a “Seller”)
and
TECHNIPOWER
LLC,
a
Delaware limited liability company (the “Company”).
WITNESSETH
:
WHEREAS,
the
Members own 100% of the issued and outstanding membership units consisting
of
Regular Units (“Regular
Units”)
and
Capital Appreciation Units (“CAUs”;
together with the Regular Units, collectively the “Membership
Interests”)
of the
Company;
WHEREAS,
the
Warrantholders own warrants to acquire Regular Units of the Company (the
“Warrants”)
in
varying amounts;
WHEREAS,
the
Company is in the power supply business (the “Business”);
WHEREAS,
the
Members wish to sell, and the Purchaser wishes to purchase, all of the Purchased
Interests (as defined in Section 1.1) representing 100% of the issued and
outstanding Membership Interests, subject to the terms and conditions contained
in this Agreement; and
WHEREAS,
the
Warrantholders wish to sell, and the Purchaser wishes to purchase, all of the
Purchased Warrants (as defined in Section 1.2), subject to the terms and
conditions contained in this Agreement;
NOW,
THEREFORE,
in
consideration of the mutual covenants and agreements set forth in this
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties do hereby agree as
follows:
ARTICLE
I
PURCHASE
AND SALE OF PURCHASED INTERESTS AND WARRANTS
Section
1.1 Purchase
and Sale of the Purchased Interests
Subject
to the terms and conditions of this Agreement, immediately following the
purchase and sale of the Purchased Warrants as provided in Section 1.2 below,
each Member agrees to sell, assign, transfer and deliver to the Purchaser on
the
Closing Date (as defined in Section 2.4 below), and the Purchaser agrees to
purchase from each Member on the Closing Date, the number of Membership
Interests set forth opposite its name on Annex
A
of this
Agreement (collectively, the “Purchased
Interests”).
All
certificates representing the Purchased Interests shall be duly endorsed by
the
Member transferring the same, with all necessary transfer tax and other revenue
stamps, if any, acquired at the Member’s expense, affixed and
cancelled.
Section
1.2 Purchase
and Sale of the Purchased Warrants.
Subject
to the terms and conditions of this Agreement, immediately prior to the purchase
and sale of the Purchased Interests as provided in Section 1.1 above, each
Warrantholder agrees to sell, assign, transfer and deliver to the Purchaser
on
the Closing Date, and the Purchaser agrees to purchase from each Warrantholder
on the Closing Date, the number of Warrants set forth opposite its name on
Annex
A
of this
Agreement and all rights attendant thereto (collectively, the “Purchased
Warrants”).
Immediately upon such purchase and sale of the Purchased Warrants, those
Warrants shall be cancelled, and all instruments representing the Purchased
Warrants shall terminate and be deemed null and void.
ARTICLE
II
PURCHASE
PRICE AND CLOSING
Section
2.1 Purchase
Price.
In
full
consideration for the purchase of the Purchased Interests and the Purchased
Warrants by the Purchaser, the purchase price (the “Purchase
Price”)
shall
be calculated and paid by the Purchaser to the Sellers, allocated among such
Sellers in the manner described on Annex
A and
in
this Article II, as follows:
2.1.1 Payments.
(i) [INTENTIONALLY
OMITTED].
(ii) Closing
Stock Payment.
Subject
to Section 2.2 below, within 5 business days following the Closing, the
Purchaser shall deliver (x) that number of Purchaser’s shares of common stock,
par value $0.001 per share (“STI
Common Stock”),
having an aggregate market value based on the Current Market Price (as defined
in Section 2.2) as of the Closing Date equal to $2,900,000 and (y) that number
of Purchaser’s shares of Series C Preferred Stock, par value $0.001 per share
(“Series
C Preferred Stock”,
together with the STI Common Stock, the “STI
Stock”,
the
Series C Preferred Stock having the rights and privileges specified in the
Series C Certificate of Designations attached hereto as Exhibit
A (the “Series
C Certificate of Designations”)),
equal to the result of dividing $3,000,000 by the Current Market Price as of
the
Closing Date for the STI Common Stock (the payments of STI Stock pursuant to
(x)
and (y) being referred to as the “Stock
Payment”).
At
the Closing, all of the Series C Preferred Stock and 75% of the STI Common
Stock
included in the Stock Payment shall be paid out to the Sellers in accordance
with Annex
A (the
“Closing
Stock Payment”).
The
remainder of the Stock Payment (the “Escrow
Amount”)
shall
be deposited with an escrow agent (the “Escrow
Agent”)
pursuant to the Escrow Agreement (as defined in Section 5.4).
2
(iii) Working
Capital Adjustment.
If the
Closing Date Working Capital, as finally determined pursuant to the procedures
set forth in Section 2.1.3, is less than the Target Working Capital, but greater
than or equal to the Minimum Working Capital, no adjustment to purchase price
will be made under this Section 2.1.1(iii). If the Closing Date Working Capital,
as finally determined pursuant to the procedures set forth in Section 2.1.3,
is
less than the Minimum Working Capital, within five business days after the
Closing Date Working Capital and any adjustments thereto shall have become
binding on the parties pursuant to the procedures set forth in Section 2.1.3,
the Sellers, through the Sellers’ Representative (as defined in Section 9.15) or
otherwise, shall pay the Purchaser the difference between the Minimum Working
Capital and the Closing Date Working Capital in accordance with Section 2.2.4.
If the Closing Date Working Capital, as finally determined pursuant to the
procedures set forth in Section 2.1.3, is more than the Target Working Capital,
within five business days after the Closing Date Working Capital and any
adjustments thereto shall have become binding on the parties pursuant to the
procedures set forth in Section 2.1.3, the Purchaser shall pay the Sellers
the
difference between the Target Working Capital and the Closing Date Working
Capital in accordance with Section 2.2.3. Any amount paid pursuant to this
Section 2.1.1(iii) shall be referred to as the “Working
Capital Payment”.
2.1.2 Certain
Definitions.
(i) “Working
Capital”
shall
mean the cash and/or other current assets of the Company which are realizable
in
one year or less (the “Current
Assets”),
reduced by the current liabilities of the Company which are payable in one
year
or less together with (without duplication) any liabilities under the Company’s
senior credit line with Citizens’ Bank (the “Current
Liabilities”),
calculated in accordance with GAAP (as defined in Section 2.1.3).
(ii) “Target
Working Capital”
shall
mean $1,502,083.00.
(iii) “Minimum
Working Capital”
shall
mean $1,252,083.00
3
(iv) “Closing
Date Working Capital”
shall
mean the Working Capital as of the Closing Date; provided, however, that
inventory included within the Current Assets shall be valued at book value
using
the same methodology as the Company used in the preparation of its Balance
Sheet
(as defined in Section 3.4).
2.1.3 Accounting
Procedures.
(i) As
soon
as practicable after the Closing Date, but in no event later than 60 days after
the independent accounting firm then auditing the books of the Purchaser (the
“Accountants”),
shall
have received from the Company all information, books and records reasonably
requested by them in order to make the Closing Date Working Capital calculation
described in Section 2.1.1(iii) above, the Purchaser shall cause the Accountants
to prepare an audited balance sheet of the Company as of the Closing Date,
prepared in accordance with generally accepted accounting principles
(“GAAP”),
together with a statement setting forth the Closing Date Working Capital as
of
the Closing Date and all adjustments to the balance sheet required to make
the
calculation of Closing Date Working Capital (the “Special
Determination”
and
such balance sheet referred to as the “Closing
Date Balance Sheet”).
If
the Sellers’ Representative does not agree that the Special Determination
correctly states the amount of Closing Date Working Capital, the Sellers’
Representative shall promptly (but not later than 45 days after the delivery
of
the Special Determination) give written notice to the Purchaser of any
exceptions thereto (in reasonable detail describing the nature of the
disagreement asserted). If the Sellers’ Representative and the Purchaser
reconcile their differences, the Closing Date Working Capital calculation shall
be adjusted accordingly and shall thereupon become binding, final and conclusive
upon all of the parties hereto. If the Sellers’ Representative and the Purchaser
are unable to reconcile their differences in writing within 20 days after
written notice of exceptions is delivered to the Purchaser, the items in dispute
shall be submitted to a mutually acceptable accounting firm (the “Independent
Auditors”)
for
final determination, and the Closing Date Working Capital calculation shall
be
deemed adjusted in accordance with the determination of the Independent Auditors
and shall become binding, final and conclusive upon all of the parties hereto.
The Independent Auditors shall consider only the items in dispute and shall
be
instructed to act within 30 days (or such longer period as the Sellers’
Representative and the Purchaser may agree) to resolve all items in dispute.
If
the Sellers’ Representative does not give notice of any exception within 45 days
after the delivery of the Closing Date Working Capital calculation or if the
Sellers’ Representative gives written notification of its acceptance of the
Closing Date Working Capital calculation prior to the end of such 45 day period,
the Closing Date Working Capital calculation set forth in the Special
Determination shall thereupon become binding, final and conclusive upon all
of
the parties hereto.
(ii) In
the
event the Independent Auditors are for any reason unable or unwilling to perform
the services required of them under this Section, then the Purchaser and the
Sellers’ Representative shall agree to select another accounting firm to perform
the services to be performed under this Section 2.1.3 by the Independent
Auditors. For purposes of this Section 2.1, the term “Independent Auditors”
shall include such other accounting firm chosen in accordance with this clause
(ii).
4
2.1.4 Examination
of Books and Records
The
books and records of the Company and the Purchaser shall be made available
during normal business hours upon reasonable advance notice at the principal
office of the Purchaser, to the parties, the Accountants and the Independent
Auditors to the extent required to determine the calculations required under
Section 2.1.
Section
2.2 Payment
of the Purchase Price
The
Purchase Price shall be paid as follows:
2.2.1 [INTENTIONALLY
OMITTED]
2.2.2 Stock
Payment.
Within
5 business days following the Closing, the Stock Payment shall be made, in
accordance with Section 2.2.3 below, in STI Common Stock having an aggregate
value of $2,900,000 based on the Current Market Price (as defined below) as
of
the Closing Date and in a number of shares of Series C Preferred Stock equal
to
the result of dividing $3,000,000 by the Current Market Price as of the Closing
Date for the STI Common Stock and paid out as provided in accordance with
Section 2.1.1(ii) and Annex
A.
The
shares of STI Stock allocated to each Seller shall be rounded up or down to
the
nearest whole share. Prior to the Purchaser’s delivery to any Seller of any
Purchase Price payment in shares of STI Stock, such Seller shall be required
to
deliver an Investment Representation Certificate (as defined in Section 5.7).
For purposes of this Agreement, “Current
Market Price”
shall
mean, with respect to any date, the average of the daily closing bid prices
of
the STI Common Stock reported on the OTC Bulletin Board for each trading day
during the period commencing 30 trading days before such date and ending on
the
last trading date prior to the applicable reference date; provided, however,
the
Current Market Price as of the Closing Date shall be $0.65 per share. The
Working Capital Payment, if any, and any additional amount paid pursuant to
Section 2.3 shall be deemed to include imputed interest to the extent required
by the Internal Revenue Code of 1986, as amended (the “Code”).
2.2.3 Delivery.
The
identity, address and ABA routing number of the bank, and account number and
name of the account of Pepe & Hazard LLP is set forth on Annex
B.
By
their execution and delivery of this Agreement, the Sellers direct the Purchaser
(i) to make payment of the Working Capital Payment to the account of Pepe &
Hazard LLP on behalf of the Sellers, (ii) to deliver the certificates
representing the Closing Stock Payment in the names of the Sellers to Pepe
&
Hazard LLP and (iii) to deliver the certificates representing the Escrow Amount
to the account of Escrow Agent.
2.2.4 Working
Capital Payment.
|
(i)
|
To
the Sellers.
In the event that the Working Capital Payment is payable to the Sellers
it
shall be paid to the Sellers in cash in accordance with the provisions
of
Section 2.2.3 within ten (10) days after it is finally
determined.
|
|
(ii)
|
To
Purchaser.
In the event that the Working Capital Payment is payable to the Purchaser
it shall be paid to the Purchaser by the Escrow Agent from the Escrow
Amount in accordance with the terms of the Escrow Agreement and this
subsection within ten (10) days after it is finally determined. The
number
of shares of STI Common Stock to be returned to the Purchaser out
of the
escrow shall be based on the Current Market Price of the STI Common
Stock
as of the date the Closing Date Working Capital is finally determined
in
accordance with Section 2.1.
|
5
Section
2.3 Stock
Payment Adjustment.
(a) In
respect of any shares of STI Common Stock that are held as of the first
anniversary of the Closing Date by any Seller or are then being held by the
Escrow Agent on behalf of a Seller (collectively with respect to such Seller,
“Retained
Shares”),
if
the Current Market Price of the STI Common Stock as of the first anniversary
of
the Closing Date (the “Post-Closing
Stock Price”)
is
less than the Current Market Price as of the Closing Date (the “Closing
Stock Price”),
and
such difference represents more than 5% of the Closing Stock Price (the
“Stock
Adjustment Threshold”),
the
Purchaser shall either, at its option:
(i) issue
additional shares of STI Common Stock (the “Additional
Shares”)
equal
to the number determined by (x) multiplying (1) the Closing Stock Price by
(2)
the number of Retained Shares, then (y) dividing the result in (x) by the
Post-Closing Stock Price and (z) subtracting from such amount the number of
Retained Shares; or
(ii) in
lieu
of issuance of the Additional Shares, pay an amount in cash equal to the result
of (x) the number of Additional Shares multiplied by (y) the Post-Closing Stock
Price.
(b)
If
the
Stock Adjustment Threshold described in Section 2.3(a) is not met, no payment
or
issuance of Additional Shares shall be required hereunder.
(c) The
provisions of Section 2.3(a) shall be appropriately adjusted in the event of
a
stock split, stock combination or stock dividend occurring prior to the first
anniversary of the Closing Date.
Section
2.4 Closing.
The
Closing of
the
transactions contemplated by this Agreement (the "Closing")
shall
take place simultaneously with the execution and delivery of this Agreement
at
10:00 A.M. on the date hereof, at
the
offices of ▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP, ▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
or
at
such other time and place as the Purchaser and the Sellers’ Representative may
otherwise agree, or by the exchange of documents and instruments by mail,
courier, e-mail, telecopy and wire transfer to the extent mutually acceptable
to
the Purchaser and the Sellers’ Representative (such date is herein referred to
as the "Closing
Date").
The
Closing is effective as of 11:59 PM as of the Closing Date.
6
ARTICLE
III
REPRESENTATIONS
OF THE SELLERS
A. Each
of
the Sellers severally represents, warrants and agrees to and with the Purchaser
as follows:
Section
3.1 Execution
and Validity of Agreements; Restrictive Documents; Approvals and
Consents.
3.1.1 Execution
and Validity. Such
Seller has the full legal right and capacity to enter into this Agreement and
perform its obligations hereunder. This Agreement has been duly and validly
executed and delivered by such Seller and, assuming due authorization, execution
and delivery by the Purchaser, constitutes a legal, valid and binding obligation
of such Seller enforceable against such Seller in accordance with its terms,
subject to laws of general application relating to bankruptcy, insolvency,
and
the relief of debtors and rules of law governing specific performance,
injunctive relief or other equitable remedies. If such Seller is an entity,
the
execution and delivery by such Seller of this Agreement, the performance by
such
Seller of its obligations hereunder and the consummation of the transactions
contemplated hereby have been duly authorized by all required corporate or
company action on behalf of such Seller.
3.1.2 Ownership.
Such
Seller is the true and lawful owner of the Purchased Interests and/or Purchased
Warrants set forth opposite its name in Annex
A to
this
Agreement and such ownership is free and clear of all mortgages, liens, security
interests, pledges, encumbrances, claims, charges and restrictions of any kind
or character (“Liens”).
If
such Seller is selling Purchased Interests, all of such Purchased Interests
have
been duly and validly authorized and issued and are fully paid, nonassessable
and free of preemptive rights, with no personal liability attaching to the
ownership thereof.
3.1.3 No
Options.
Except
as disclosed on Schedule
3.1.3,
there
are no outstanding subscriptions, options, rights, warrants, calls, commitments
or arrangements of any kind to acquire any of the Purchased Interests or
Purchased Warrants owned by such Seller and there are no agreements or
understandings with respect to the sale or transfer of such Purchased Interests
or Purchased Warrants.
3.1.4 No
Restrictions.
There is
no action, suit, claim, or proceeding at law or in equity, on any arbitration
or
administrative or other proceeding, or any investigation or inquiry by any
court,
tribunal, arbitrator, authority, agency, commission, official or other
instrumentality of the United States, any foreign country or any domestic or
foreign state, county, city or other political subdivision (a “Governmental
or Regulatory Authority”),
and no
legal, administrative or arbitration proceeding pending or, to such Seller’s
Knowledge, threatened against such Seller or any of such Seller’s properties,
rights or assets, with respect to the execution, delivery or performance of
this
Agreement or the transactions contemplated hereby or any other agreement entered
into by such Seller in connection with the transactions contemplated
hereby.
7
3.1.5 Non-Contravention,
Approvals and Consents.
The
execution and delivery by such Seller of this Agreement, the performance by
such
Seller of its obligations hereunder and the consummation of the transactions
contemplated hereby, will not (a) result in the violation by such Seller of
any
statute, law, rule, regulation or ordinance (collectively, “Laws”),
or
any judgment, decree, order, writ, permit or license (collectively,
“Orders”),
of
any Governmental or Regulatory Authority applicable to such Seller or any of
its
assets or properties, or (b) if the consents and notices set forth in
Schedule
3.1.6
are
obtained or given, conflict with, result in a violation or breach of, constitute
(with or without notice or lapse of time or both) a default under, require
such
Seller (except as set forth in Schedule
3.1.6)
to
obtain any consent, approval or action of, make any filing with or give any
notice to any Person pursuant to, result in or give to any Person any right
of
payment or reimbursement, termination, cancellation, modification or
acceleration of, or result in the creation or imposition of any Liens upon
any
of the assets or properties of such Seller under, any of the terms, conditions
or provisions of any note, bond, mortgage, security agreement, indenture,
license, franchise, permit, concession, contract, lease or other instrument,
obligation or agreement of any kind (collectively, “Instruments”)
to
which such Seller is a party or by which such Seller or any of its assets or
properties is bound.
3.1.6 Approvals
and Consents.
Except
as set forth on Schedule
3.1.6,
no
consent, approval, authorization or action of, registration or filing with,
or
notice to any Governmental or Regulatory Authority or other public or private
third party is necessary or required under any of the terms, conditions or
provisions of any Law or Order of any Governmental or Regulatory Authority
or
any Instrument to which such Seller is a party or its assets or properties
are
bound in connection with the execution and delivery by such Seller of this
Agreement, the performance by such Seller of its obligations hereunder or the
consummation of the transactions contemplated hereby.
B. The
Company represents, warrants and agrees to and with the Purchaser as
follows:
Section
3.2 Existence
and Good Standing.
The
Company is a limited liability company duly organized, validly existing and
in
good standing under the laws of the State of Delaware, with the full limited
liability company power and authority to own and operate its properties and
to
conduct its business all as and in the places where such properties are now
owned or operated or such business is now being conducted. The Company is duly
qualified, licensed or admitted to do business and is in good standing in those
jurisdictions set forth on Schedule
3.2,
which
are the only jurisdictions in which the ownership, use or leasing of its assets
and properties, or the conduct or nature of its business, makes such
qualification, licensing or admission necessary.
Section
3.3 Subsidiaries
and Investments.
3.3.1 Subsidiaries
and Investments.
Except
as set forth in Schedule
3.3.1,
the
Company does not own any capital stock or other equity or owner-ship or
proprietary interest in any corporation, limited liability company, association,
trust, joint venture or other entity.
8
3.3.2 Equity
Interests.
The
Members collectively own
of
record and beneficially have valid title to
100% of
the Regular Units and CAUs of the Company in the amounts set forth on
Schedule
3.3.2. Schedule 3.3.2
sets
forth: (i) the number of authorized Regular Units and CAUs of the Company;
and
(ii) the ownership of all issued and outstanding Regular Units and CAUs of
the
Company. All such Regular Units and CAUs have been duly authorized and validly
issued, are fully paid and non-assessable and have not been issued in violation
of any preemptive rights of members of the Company. No other units of or other
equity interests in the Company are authorized or outstanding. Except as set
forth on Schedule
3.3.2,
there
are no outstanding options, warrants, rights, calls, commitments, conversion
rights, rights of exchange, plans or other agreements of any character
(collectively, “Options”)
providing for the purchase, issuance or sale of any equity interests in the
Company. Each of the Purchased Warrants have been duly authorized and validly
issued and each certificate in respect thereof represents as of the Closing
Date
the right to purchase the number of Regular Units set forth opposite the
Warrantholders’ name on Annex
A
hereto
at the exercise price set forth above such Warrant.
Section
3.4 Financial
Statements.
Schedule 3.4(A)
sets
forth the following financial statements of the Company: (A) an unaudited
internally prepared balance sheet of the Company as of December 31, 2005 and
the
related audited statements of income and cash flows for the twelve months then
ended; and (B) an unaudited internally prepared balance sheet of the Company
as
of June 30, 2006 (the “Balance
Sheet Date”)
and
the related unaudited statements of income and cash flows for the six months
then ended (the unaudited balance of the Company as of June 30, 2006, including
the footnotes thereto, is hereinafter referred to as the “Balance
Sheet”).
Such
financial statements, including the footnotes thereto, have been prepared in
accordance with GAAP consistently applied throughout the period indicated;
provided,
however,
inventory has been reported on a consistent basis from period to period during
the Company’s existence in accordance with the Company’s good faith belief as to
value, which is not necessarily consistent with GAAP. Such balance sheets fairly
present the financial condition of the Company at the respective dates thereof
and, except as indicated therein, reflect all claims against and all debts
and
liabilities of the Company, fixed or contingent, as at the respective dates
thereof, required to be shown thereon under GAAP, and the related statements
of
income and cash flows fairly present the results of operations of the Company
for the respective periods indicated, subject to in the case of interim
financial statements, to normal recurring year end adjustments described on
Schedule
3.4(B).
Section
3.5 Books
and Records.
Except
as set forth on Schedule
3.5,
all
accounts, books, ledgers and official and other records material to the business
of the Company maintained by or on behalf of the Company of whatsoever kind
have
been properly and accurately kept and com-pleted in all material respects,
and
there are no material inaccuracies or discrepancies of any kind contained or
reflected therein. Except as set forth on Schedule 3.5,
the
Company does not have any of its records, systems, controls, data or information
recorded, stored, maintained, operated or otherwise wholly or partly dependent
on or held by any means (including any electronic, mechanical or photographic
process, whether computerized or not) which (including all means of access
thereto and therefrom) are not under the exclusive ownership and possession
of
the Company.
9
Section
3.6 Tangible
Personal Property; Encumbrances.
The
Company has good and valid title to, or enforceable leasehold interests in
or
valid rights under contract to use, all the material properties and assets
owned
or used by it (personal, tangible and intangible), including, without limitation
(a) all the properties and assets reflected in the Balance Sheet, and (b) all
the properties and assets purchased or otherwise contracted for by the Company
since the Balance Sheet Date (except for properties and assets reflected in
the
Balance Sheet or acquired or otherwise contracted for since the Balance Sheet
Date that have been sold or otherwise disposed of in the ordinary course of
business), in each case free and clear of all Liens, except for Liens set forth
on Schedule 3.6.
The
property, plant and equipment owned or otherwise contracted for by the Company
is in a state of good maintenance and repair and is adequate and suitable in
all
material respects for the purposes for which they are presently being used.
Section
3.7 Real
Property.
3.7.1 Owned
Real Property. The
Company does not own a freehold interest in any real property or any option
or
right of first refusal or first offer to acquire real property.
3.7.2 Leased
Real Property.
Schedule
3.7.2 sets
forth an accurate and complete list of all leases and subleases of real property
to which the Company is a party (as lessee, lessor, sublessee or sublessor),
including, without limitation, leases which the Company has either subleased
or
assigned to a third party and as to which the Company remains liable (such
leases and subleases are collectively referred to as the “Real
Property Leases”).
Each
Real Property Lease set forth on Schedule 3.7.2
(or
required to be set forth on Schedule 3.7.2)
is
valid, binding and in full force and effect; all rents and additional rents
and
other sums, expenses and charges due on each such lease have been paid; and
the
lessee has been in peaceable possession since the commencement of its original
possession under such lease and no waiver, indulgence or postponement of the
lessee’s obligations thereunder has been granted by the lessor. Except as set
forth in Schedule 3.7.2,
there
exists no default or event of default by the Company or, to the Knowledge of
the
Company, by any other party to such Real Property Lease, or occurrence,
condition or act (including the purchase of the Purchased Interests and
Purchased Warrants hereunder) which, with the giving of notice, the lapse of
time or the happening of any further event or condition, would become a default
or event of default by the Company under such Real Property Lease, and there
are
no outstanding claims of breach or indemnification or notice of default or
termination of any Real Property Lease. The real property leased by the Company
is in a state of good maintenance and repair and is adequate and suitable for
the purposes for which it is presently being used, and to the Knowledge of
the
Company, there are no material repair or restoration works likely to be required
in connection with any of the leased real properties. Except as set forth on
Schedule 3.7.2,
the
Company is in physical possession and actual and exclusive occupation of the
whole of each of its leased properties. The Company does not owe any brokerage
commission with respect to any Real Property Leases.
10
Section
3.8 Contracts.
Schedule 3.8
hereto
sets forth an accurate and complete list of the following agreements to which
the Company is a party (and any amendments, modifications or supplements
thereto, whether oral or written): (a) all Plans (as such term is defined in
Section 3.19); (b) any personal property lease with a fixed annual rental of
$10,000 or more; (c) any contract relating to capital expenditures which
involves payments of $25,000 or more in any single or series of related
transactions; (d) any loan or advance to, or investment in, any other Person
(as
defined in Section 9.3), or commitments for any of the same, in an amount
exceeding $10,000 or any contract relating to the making of any such loan,
advance or investment; (e) any guarantee or other contingent liability in
respect of any indebtedness or obligation of any other Person in an amount
exceeding $10,000 (other than the endorsement of negotiable instruments for
collection in the ordinary course of business); (f) any instrument or
arrangement evidencing or related in any way to indebtedness for borrowed money
or money to be borrowed, whether directly or indirectly, by way of loan,
purchase money obligation, conditional sale, purchase or otherwise; (g) any
management service, employment, consulting or any other similar type of contract
or agreement relating to services to be provided to the Company which is not
cancelable by the Company without penalty or other financial obligation within
30 days; (h) any contract limiting the Company’s freedom to engage in any line
of business or to compete with any other Person, including agreements limiting
the Company’s ability to take on competitive accounts after the termination
thereof; (i) any contract (not covered by another subsection of this Section
3.8) which involves $25,000 or more over the unexpired term thereof and is
not
cancelable by the Company without penalty or other financial obligation within
30 days; (j) any collective bargaining agreement; (k) any contract with any
of
the Company’s officers, directors or managers or the Sellers (including, without
limitation, indemnification agreements); (l) any secrecy or confidentiality
agreement (other than standard confidentiality agreements in computer software
license agreements or agreements with customers entered into in the ordinary
course of business); (m) any licensing or franchise agreement (other than
shrink-wrap license agreements for “off-the-shelf” third party computer software
not included within the Company’s products or services); (n) any agreement with
a customer which generates annual revenues of $25,000 or more; and (o) any
joint
venture agreement involving a sharing of profits not covered by (a) through
(n)
above. Each contract set forth on Schedule 3.8
(or
required to be set forth on Schedule 3.8)
is in
full force and effect, and there exists no default or event of default by the
Company or, to the Knowledge of the Company, by any other Person, or occurrence,
condition, or act (including the purchase of the Purchased Interests hereunder)
which, with the giving of notice, the lapse of time or the happening of any
other event or condition, would become a default or event of default thereunder
by the Company, and there are no outstanding claims of breach or indemnification
or notice of default or termination of any such contracts.
Section
3.9 Non-Contravention;
Approvals and Consents.
3.9.1 Non-Contravention.
The
execution, delivery and performance by the Sellers of their obligations
hereunder and the consummation of the transactions contemplated hereby, will
not
(a) violate, conflict with or result in the breach of any provision of the
charter documents (or other comparable documents) of the Company, or (b) result
in the violation by the Company of any Laws or Orders of any Governmental or
Regulatory Authority applicable to the Company or any of its assets or
properties, or (c) if the consents and notices set forth in Schedule
3.9.2
are
obtained or given, conflict with, result in a violation or breach of, constitute
(with or without notice or lapse of time or both) a default under or (except
as
set forth in Schedule
3.9.2)
require
the Company to obtain any consent, approval or action of, make any filing with
or give any notice to any Person pursuant to, or result in or give to any Person
any right of payment or reimbursement, termination, cancellation, modification
or acceleration of, or result in the creation or imposition of any Lien upon
any
of the assets or properties of the Company under, any of the terms, conditions
or provisions of any Instruments to which the Company is a party or by which
the
Company or any of its assets or properties is bound.
11
3.9.2 Approvals
and Consents.
Except
as set forth on Schedule
3.9.2,
no
consent, approval, authorization or action of, registration or filing with,
or
notice to any Governmental or Regulatory Authority or other public or private
third party is necessary or required under any of the terms, conditions or
provisions of any Law or Order of any Governmental or Regulatory Authority
or
any Instrument to which the Company is a party or by which its assets or
properties are bound in connection with the execution and delivery of this
Agreement by the Sellers, the performance by the Sellers of their obligations
hereunder or the consummation of the transactions contemplated
hereby.
Section
3.10 Litigation.
Except
as set forth on Schedule 3.10,
there
is no action, suit, claim, investigation or proceeding, at law or in equity,
or
any arbitration or administrative or other proceeding, by or before any
Governmental or Regulatory Authority, pending or, to the Knowledge of the
Company, threatened, against the Company or any of the Sellers with respect
to
the execution, delivery or performance of this Agreement or the transactions
contemplated hereby or any other agreement entered into by the Company or any
of
the Sellers in connection with the transactions contemplated hereby or against
or affecting the Company or its properties, rights or assets; and to the
Knowledge of the Company, no act, fact, circumstance, event or condition
occurred or exists which is a basis for any such action, suit, claim, proceeding
or investigation. The Company is not subject to any judgment, order or decree
entered in any action, suit, claim, proceeding or investigation.
Section
3.11 Taxes.
The
Company has timely filed, or caused to be filed (taking into account any valid
extensions of due dates), completely and accurately, all federal, state, local
and foreign tax or information returns (including estimated tax returns)
required under the statutes, rules or regulations of such jurisdictions to
be
filed by the Company with respect to income, accumulated earnings, franchise,
capital stock, employees’ income withholding, back-up withholding, withholding
on payments to foreign persons, social security, unemployment, disability,
real
property, personal property, sales, use, excise, transfer and other taxes
(including interest, penalties or additions to tax in respect of the foregoing)
whether disputed or not (all of the foregoing collectively referred to as
“Taxes”).
All
Taxes shown on said returns to be due and all other Taxes due and owing (whether
or not shown on any return) have been paid in full and all additional
assessments received prior to the Closing Date have been paid in full or are
being contested in good faith, in which case, such contested assessments are
set
forth on Schedule
3.11.
The
amount set up as an accrual for Taxes on the Balance Sheet is sufficient for
the
payment of all unpaid Taxes of the Company, whether or not disputed, for all
periods ended on and prior to the date thereof. Since the Balance Sheet Date,
the Company has not incurred any liabilities for Taxes other than in the
ordinary course of business. The Company has delivered to the Purchaser correct
and complete copies of all federal and state income tax returns filed with
respect to the Company for all taxable periods beginning on or after January
1,
2001. Except as set forth on Schedule
3.11,
none of
the federal, state or local tax returns of the Company (or the Members with
respect to any items of income or gain) has ever been audited by the Internal
Revenue Service or any other Governmental or Regulatory Authority. No
examination of any return of the Company is currently in progress, and the
Company has not received notice of any proposed audit or examination. No
deficiency in the payment of Taxes by the Company for any period has been
asserted in writing by any taxing authority and remains unsettled at the date
of
this Agreement. The Company has not made an election under Section 338 of the
Code. The Company has not entered into any agreement, waiver or other
arrangement providing for any extension of time with respect to the assessment
or collection of any Taxes. The Company has not been a member of an affiliated
group filing consolidated federal income tax returns nor has it been included
in
any combined consolidated or unitary state or local income tax return. The
Company is not a party to any tax allocation or tax sharing agreement nor does
it have any contractual obligation to indemnify any other person with respect
to
Taxes. The Company has not been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code within the
period specified in Section 897(c)(1)(A)(ii) of the Code. The Company will
not
be required as a result of a change in accounting method for any period ending
on or before the Closing Date or as a result of the transactions contemplated
herein to include any adjustment under Section 481 of the Code (or any similar
provision of state, local or foreign income tax law) in income for any period
ending after the Closing Date. Neither
the Purchaser nor the Company will be required to include any item of income
in,
or exclude any item of deduction from, taxable income for any taxable period
(or
portion thereof) ending after the Closing Date as a result of any: (i) “closing
agreement” as described in Code Section 7121 (or any corresponding or similar
provision of state, local, or foreign income Tax law); (ii) installment sale
or
open transaction disposition made on or prior to the Closing Date; or (iii)
prepaid amount received on or prior to the Closing Date.
12
Section
3.12 Liabilities.
Except
as set forth in the Balance Sheet or referred to in the footnotes thereto,
the
Company does not have any outstanding claims, liabilities, obligations or
indebtedness of any nature whatsoever (collectively “Liabilities”),
whether accrued, absolute or contingent, determined or undetermined, asserted
or
unasserted, and whether due or to become due, other than (i) Liabilities
specifically disclosed in Schedule
3.12
hereto;
(ii) Liabilities under contracts, purchase orders and other agreements,
arrangements and commitments of the type required to be disclosed by the Company
on any Schedule and so disclosed or which because of the dollar amount or other
qualifications are not required to be listed on such Schedule; and (iii)
Liabilities incurred since the Balance Sheet Date in the ordinary course of
business and consistent with past practice not involving borrowings by the
Company. Schedule 3.8
sets
forth a list of all current arrangements of the Company for borrowed money
and
all outstanding balances as of the Closing Date with respect thereto. The
Company is not in default in respect of the terms or conditions of any
borrowings.
Section
3.13 Insurance.
Schedule
3.13
contains
a true and complete list (including the names and addresses of the insurers,
the
names of the Persons to whom such insurance policies have been issued, the
expiration dates thereof, the annual premiums and payment terms thereof, whether
it is a “claims made” or an “occurrence” policy and a brief description of the
interests insured thereby) of all liability, property, workers’ compensation and
other insurance policies currently in effect that insure the property, assets
or
business of the Company or its employees (other than self-obtained insurance
policies by such employees). Each insurance policy listed on Schedule
3.13
that
relates
to a Plan to be assumed by the Purchaser (“Assumed
Policies”),
is
valid
and binding and in full force and effect, all premiums due thereunder have
been
paid and the Company has not received any notice of cancellation, termination or
default in respect of any such policy. Neither the Company nor, to the Knowledge
of the Company, the Person to whom such policy has been issued, has received
notice that any insurer under any Assumed Policies is denying liability with
respect to a claim thereunder or defending under a reservation of rights clause.
Except as set forth on Schedule
3.13,
within
the last two years the Company has not filed for any claims exceeding $25,000
against any Assumed Policies, exclusive of automobile and health insurance
policies. None
of
the Assumed Policies shall lapse or terminate by reason of the transactions
contemplated by this Agreement and all such policies shall continue in effect
after the Closing Date for the benefit of the Purchaser. The Company has not
received any notice of cancellation of any Assumed Policy. The Company has
not
received written notice from any of its insurance carriers that the premiums
in
respect of any Assumed Policy will be materially increased in the future. The
Company has not been refused any insurance or required to pay higher than normal
or customary premiums, nor has its coverage been limited by any insurance
carrier to which it has applied for insurance during the last three
years.
13
Section
3.14 Intellectual
Properties.
Schedule
3.14
hereto
contains an accurate and complete list of (a) all patents, patent applications,
registered trademarks, applications for registered trademarks, registered
service marks, applications for registered service marks, logos, registered
copyrights, applications for registered copyrights and Internet domain names
which are used in connection with the operation of the Company and (b) all
unregistered trademarks, service marks and copyrights which are used in
connection with the operation of the Company and (c) all agreements under which
any Person has granted a license for any Intellectual Property to the Company
(other than license agreements for “off the shelf” third party computer software
not included within the Company’s products or services). The Company has all
right, title and interest in, has a valid and binding license to use, or has
the
requisite permission and authority to use all Intellectual Property used in
the
conduct of its business. No claim of infringement or misappropriation of
Intellectual Property is or has been pending or, to the Knowledge of the
Company, threatened against the Company and, to the Knowledge of the Company,
the Company is not infringing or misappropriating any Intellectual Property
of
any Person. Except as provided in Schedule
3.14,
the
Company has not expressly granted any license, franchise or permit in effect
on
the date hereof to any Person to use any of the trade names or any of the
trademarks owned by it. As used in this Agreement, the term “Intellectual
Property”
means
patents and patent rights, trademarks and trademark rights, tradenames and
tradename rights, service marks and service ▇▇▇▇ rights, service names and
service name rights, copyright and copyright rights, trade secrets and trade
secret rights, rights of privacy and publicity, and other proprietary
intellectual property and personal rights and all pending applications for
and
registrations of any of the foregoing.
Section
3.15 Compliance
with Laws; Permits
3.15.1 Compliance.
The
Company is, and the Business has been conducted, in compliance with all
applicable Laws and Orders including without limitation, (a) all Laws and Orders
promulgated by any Governmental or Regulatory Authority, except as would not
reasonably be expected to have a Material Adverse Effect (as defined below)
(exclusive of Environmental Laws and Orders (as defined in Section
3.15.3(c)(ii)); and (b) all Laws and Orders relating to labor, civil rights,
and
occupational safety and health laws, worker’s compensation, employment and
wages, hours and vacations, or pay equity. The Company has not been charged
with, and, to the Knowledge of the Company, has not been threatened with and
is
not under any investigation with respect to, any charge concerning any violation
of any Laws or Orders (exclusive of Environmental Laws and Orders. For purposes
of this Agreement, “Material
Adverse Effect”
shall
mean any material and adverse effect on the assets, liabilities, results of
operations, business, prospects or condition, financial or otherwise, of the
Company or the Business.
3.15.2 Permits.
The
Company has all licenses and permits and other governmental certificates,
authorizations and approvals (collectively, “Permits”)
required by a Governmental or Regulatory Authority for the operation of the
Business and the use of its properties as presently operated or used, except
where the failure to have such Permits would not reasonably be expected to
have
a Material Adverse Effect. All such Permits are set forth on Schedule
3.15.2.
All of
the Permits are in full force and effect and no action or claim is pending,
nor,
to the Knowledge of the Company, threatened, to revoke or terminate any of
such
Permits or declare any such Permits invalid in any material
respect.
14
3.15.3 Environmental
Protection.
(a) Compliance.
The
Company is in compliance with all applicable Environmental Laws and Orders
and
has operated its business in compliance with all Environmental Laws and Orders.
Except as set forth on Schedule
3.15.3,
the
Company has not received any communication from any Governmental or Regulatory
Authority that alleges that the Company is not in compliance with applicable
Environmental Laws and Orders. The Company does not have any liability under
any
existing Environmental Law and Order and has not been issued any order, Notice
of Violation or compliance order or any other form of communication from any
federal, state or local agency establishing any obligation to remedy any
Environmental Condition (as defined in Section 3.15.3(c)(v) below). There
exists no Environmental Condition with respect to the business currently or
previously operated by the Company, or to the Knowledge of the Company, with
respect to any property leased by the Company pursuant to the Real Property
Leases (the “Leased
Real Property”).
All
operations at the facility involving any Hazardous Material have been conducted
in compliance with all applicable Environmental Laws and Orders. To the
Knowledge of the Company, no Hazardous Material has migrated from other
properties upon, about, or beneath the Leased Real Property. The Company and
its
predecessors have not received (i) any request for information, notice, demand
letter or notice of a legal proceeding, or is subject to a pending or ongoing
investigation, with respect to any Environmental Condition relating to any
of
the Leased Real Property, or any facilities or operations thereon or (ii) any
notice under the citizen suit or contribution provision of any Environmental
Law
and Order in connection with any of the Leased Real Property, or any facilities
or operations thereon. The Company has delivered to the Purchaser all documents
and records in possession or control of the Company or any of its affiliates
concerning Environmental Conditions at the Leased Real Property, or any
facilities or operations thereon, whether generated by the Company or any other
Person, including without limitation environmental audits, environmental risk
assessments or site assessments of any of the Leased Real Property and/or any
adjacent property or any property in the vicinity of any of the Leased Real
Property owned or operated by the Company or any other Person, documentation
regarding off-site disposal of Hazardous Materials, spill control plans and
environmental agency reports and correspondence.
(b) Environmental
Claims; Judgments.
There
is no Environmental Claim (as defined in Section 3.15.3(c)(i) below) pending,
or
to the Knowledge of the Company, threatened (i) against the Company, or
(ii) against any real or personal property or operations that the Company
now or previously owned, leased, managed or operated, in whole or in part.
The
Company has not entered into or agreed to any consent decree or order, nor
is
subject to any judgment, decree or judicial order, in each case, relating to
compliance with any Environmental Law and Order or to investigation or cleanup
of Hazardous Materials under any Environmental Law and Order.
(c) As
used
in this Agreement:
(i) “Environmental
Claim”
means
any and all administrative, regulatory or judicial actions, suits, demands,
demand letters, directives, claims, Liens, investigations, proceedings or
notices of noncompliance or violation by any Person or entity (including any
Governmental or Regulatory Authority) alleging potential liability (including,
without limitation, potential responsibility for or liability for enforcement
costs, investigatory costs, cleanup costs, governmental response costs, removal
costs, remedial costs, natural resources damages, property damages, personal
injuries, fines or penalties) arising out of, based on or resulting from (A)
the
presence, or Release (as defined below) or threatened Release into the
environment, of any Hazardous Materials at any location, whether or not owned,
operated, leased or managed by the Company or any of its subsidiaries; or
(B) circumstances forming the basis of any violation, or alleged violation,
of any Environmental Law and Order; or (C) any and all claims by any third
party
seeking damages, contribution, indemnification, cost recovery, compensation
or
injunctive relief resulting from the presence or Release of any Hazardous
Materials.
15
(ii) “Environmental
Laws and Orders”
means
all federal, state, local laws, rules, ordinances and regulations, judgment,
decree, order, writ, permit or license relating to pollution, the environment
(including, without limitation, ambient air, surface water, groundwater, land
surface or subsurface strata) or protection of natural resources or human health
as it relates to the environment including, without limitation, laws and
regulations relating to Releases or threatened Releases of Hazardous Materials,
or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Hazardous
Materials.
(iii) “Hazardous
Materials”
means
(A) any petroleum or petroleum products, radioactive materials, and (B) any
chemicals, materials or substances which are regulated pursuant to any
Environmental Law and Order including (but not limited to) the Resource
Conservation and Recovery Act, 42 U.S.C. 6901 et
seq.,
and the
Toxic
Substance Control Act 15 U.S.C. 2601 et
seq.
(iv) “Release”
means
any release, spill, emission, leaking, injection, deposit, disposal, discharge,
dispersal, leaching or migration into the atmosphere, soil, surface water,
groundwater or property.
(v) “Environmental
Condition”
means
a
condition with respect to the environment, which may result in any Losses to
the
Company.
Section
3.16 Customer
Relations. Schedule 3.16
sets
forth for the Company: (a) the ten largest customers (measured by revenue)
as at
December 31, 2005 and the revenue from each such customer and from all customers
(in the aggregate) for the calendar year ended December 31, 2005; and (b) the
customers under contract as of June 30, 2006 projected to be the ten largest
customers (measured by revenue) based on the Company’s current profit plan for
the calendar year ending December 31, 2006, together with the estimated revenue
for each such customer and all customers (in the aggregate) for such calendar
year. The Company does not warrant that the estimated projected revenue set
forth on Schedule
3.16
will
prove to be accurate; provided, however, the Company does represent that they
were made in good faith and upon a reasonable basis. No customer of the Company
identified pursuant to (a) or (b) above has advised the Company in writing
that
it (x) is terminating or considering terminating the handling of its business
by
the Company, as a whole or in respect of any particular project or service;
or
(y) is planning to reduce its future spending with the Company in any material
manner, and to the Knowledge of the Company (without making any inquiry of
any
customers), no such customer has orally advised the Company of any of the
foregoing events.
Section
3.17 Accounts
Receivable; Work-in-Process; Accounts Payable.
The
amount of all work-in-process, accounts receivable, unbilled invoices (including
without limitation unbilled invoices for services and out-of-pocket expenses)
and other debts due or recorded in the records and books of account of the
Company as being due to the Company and reflected on the Balance Sheet represent
or will represent valid obligations arising from services performed by the
Company in the ordinary course of business, will be good and collectible in
full
in the ordinary course of business (less the amount of any provision, reserve
or
similar adjustment therefore reflected on the Balance Sheet and the Closing
Date
Balance Sheet) and will not be subject to any counterclaim or set off (except
to
the extent of any provision, reserve or similar adjustment therefore reflected
on the Balance Sheet and the Closing Date Balance Sheet). There has been no
material change since the Balance Sheet Date in the amount or aging of the
work-in-process, accounts receivable or other debts due to the Company or the
reserves with respect thereto, or accounts payable of the Company, in each
case
other than in the ordinary course of business or as set forth on Schedule
3.23.
16
Section
3.18 Employment
Relations.
(a) The
Company is not engaged in any unfair labor practice; (b) no unfair labor
practice complaint against
the Company is pending before any Governmental or Regulatory Authority; (c)
there is no organized labor strike, dispute, slowdown or stoppage actually
pending or, to the Knowledge of the Company, threatened against or involving
the
Company; (d) there are no labor unions representing or, to the Knowledge of
the
Company,
attempting to represent the employees of the Company; (e) no claim or grievance
nor any arbitration proceeding arising out of or under any collective bargaining
agreement is pending and, to the Knowledge of the Company, no such claim or
grievance has been threatened; (f) no collective bargaining agreement is
currently being negotiated by the Company; (g) the Company has not experienced
any work stoppage or similar organized labor dispute during the last three
years; and (h) the Company does not engage any contractors or subcontractors
who
may be construed by the Internal Revenue Service as employees of the Company.
There is no legal action, suit, proceeding or claim pending or, to the Knowledge
of the Company, threatened between the Company and any of its employees, former
employees, agents, former agents, job applicants or any association or group
of
any of employees, except as set forth on Schedule
3.10.
Section
3.19 Employee
Benefit Matters.
3.19.1 List
of Plans.
Schedule 3.19.1
sets
forth an accurate and complete list of all employee benefit plans (as defined
in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
(“ERISA”))
and
all bonus, incentive, deferred compensation, retiree medical or life insurance,
supplemental retirement, severance or other benefit plans, stock option,
restricted stock, phantom stock, or other equity incentive plans, programs
or
arrangements, and all termination, severance or other contracts or agreements,
whether formal or informal, whether or not set forth in writing, whether
covering one person or more than one person, and whether or not subject to
any
of the provisions of ERISA, which are maintained, contributed to or sponsored
by
the Company for the benefit of any employee or which otherwise cover any
employee or former employee of the Company (each item so listed on Schedule 3.19.1
being
referred to herein individually, as a “Plan”
and
collectively, as the “Plans”).
The
Company has delivered to the Purchaser a complete and accurate copy (where
applicable) of (i) each written Plan and descriptions of any unwritten Plan
(including all amendments thereto whether or not such amendments are currently
effective), (ii) each summary plan description and summary of material
modifications relating to a Plan, (iii) each trust agreement or other funding
arrangement with respect to each Plan, including insurance contracts, (iv)
the
most recently filed Internal Revenue Service Form 5500 relating to each Plan
(if
any), and (v) the most recently received Internal Revenue Service determination
letter or opinion letter for each Plan and (vi) the most recently prepared
actuarial reports and the three most recently prepared financial statements,
if
applicable, in connection with each Plan. Except as set forth on Schedule 3.19.1,
the
Company has not expressly or impliedly made any commitment, whether legally
enforceable or not, (i) to create or cause to exist any other employee benefit
plan, program or arrangement or (ii) to modify, change or terminate any
Plan.
17
3.19.2 Severance.
Except
as set forth on Schedule 3.19.2,
none of
the Plans, or any employment agreement or other contract to which the Company
is
a party or bound, provides for the payment of or obligates the Company to pay
separation, severance, termination or similar-type benefits to any Person or
obligates the Company to pay separation, severance, termination or similar-type
benefits contingent upon any transaction contemplated by this Agreement or
contingent upon a change in the ownership or effective control of the Company
or
the ownership of a substantial portion of the assets of the Company within
the
meaning of such term under Section 280G of the Code.
3.19.3 Multi-Employer
Plans.
Neither
the Company nor any ERISA Affiliate (as herein defined) has maintained,
contributed to or participated in a multi-employer plan (within the meaning
of
Section 3(37) or 4001(a)(3) of ERISA or a multiple employer plan subject to
Sections 4063 and 4064 of ERISA) nor has any obligations or liabilities,
including withdrawal or successor liabilities, regarding any such plan. As
used
in this Agreement, the term “ERISA Affiliate” means any Person that, together
with the Company, is considered a “single employer” pursuant to Section 4001(b)
of ERISA.
3.19.4 Welfare
Benefit Plans.
Schedule
3.19.1
sets
forth a complete and accurate list of each Plan which provides or promises,
medical, retiree medical, disability or life insurance benefits to any current
or former employee, officer or director of the Company. Except as set forth
on
Schedule
3.19.4,
the
Company has expressly reserved the right, in all Plan documents relating to
welfare benefits provided to employees, former employees, officers, directors
and other participants and beneficiaries, to amend, modify or terminate at
any
time the Plans which provide for welfare benefits and the Company is not aware
of any fact, event or condition that could reasonably be expected to restrict
or
impair such right.
3.19.5 Administrative
Compliance.
Each
Plan is now and has been operated in all material respects in accordance with
its terms and with the requirements of all applicable law, including, without
limitation, ERISA, the Health Insurance Portability and Accountability Act
of
1996, the Code, the Age Discrimination in Employment Act, the Family and Medical
Leave Act, the Americans with Disabilities Act, the Equal Pay Act, and Title
VII
of the Civil Rights Act of 1964, and the regulations and authorities published
thereunder. The Company performed all material obligations required to be
performed by it under, is not in any respect in default under or in violation
of, and the Company has no Knowledge of any default or violation by any party
to, any Plan. Except as set forth on Schedule
3.10,
no
legal action, suit, audit, investigation or claim is pending or threatened,
with
respect to any Plan (other than claims for benefits in the ordinary course)
and,
except as set forth on Schedule
3.19.5,
no
fact, event or condition exists that would be reasonably likely to provide
a
legal basis for any such action, suit, audit, investigation or claim. Except
as
set forth on Schedule
3.19.5,
all
reports, disclosures, notices and filings with respect to such Plans required
to
be made to employees, participants, beneficiaries, alternate payees and
government agencies have been timely made or an extension has been timely
obtained.
18
3.19.6 Tax-Qualification.
Except
as set forth on Schedule
3.19.6,
each
Plan which is intended to be qualified under Section 401(a) of the Code has
received a favorable determination letter from the Internal Revenue Service
that
it is so qualified or (in the case of a prototype plan) the prototype plan
sponsor has received a favorable opinion letter from the Internal Revenue
Service that the form of Plan is so qualified. Each trust established in
connection with any Plan which is intended to be exempt from federal income
taxation under Section 501(a) of the Code has received a determination letter
from the Internal Revenue Service that it is so exempt or (in the case of a
prototype plan) the prototype plan sponsor has received a favorable opinion
letter from the Internal Revenue Service that the form of trust is so exempt.
No
fact or event has occurred or condition exists since the date of such
determination or opinion letter from the Internal Revenue Service which would
be
reasonably likely to adversely affect the qualified status of any such Plan
or
the exempt status of any such trust.
3.19.7 Funding;
Excise Taxes.
There
has been no prohibited transaction (within the meaning of Section 406 of ERISA
or Section 4975 of the Code) with respect to any Plan subject to ERISA. The
Company has not incurred any material liability for any excise tax arising
under
Sections 4971, 4972, 4975, 4976, 4977, 4978, 4978B, 4979, 4979A, 4980, 4980B,
4980D or 4980E of the Code or any civil penalty arising under Sections 409,
502(i) or 502(l) of ERISA, and no fact, event or condition exists which could
give rise to any such liability. Neither the Company nor any ERISA Affiliate
has
maintained, contributed to or participated in or has any obligation with respect
to any retirement plan that is or was subject to Section 302 or Title IV of
ERISA. No complete or partial termination has occurred within the five years
preceding the date hereof with respect to any Plan that is a pension benefit
plan maintained by the Company or any ERISA Affiliate.
3.19.8 Tax
Deductions.
All
contributions, premiums or payments (including all employer contributions and,
if applicable, all employee salary reduction contributions) required to be
made,
paid or accrued with respect to any Plan have been made, paid or accrued on
or
before their due dates, including extensions thereof. All such contributions
have been fully deducted for income tax purposes and no such deduction has
been
challenged or disallowed by any government entity and no fact or event exists
which could give rise to any such challenge or disallowance.
Section
3.20 Interests
in Customers, Suppliers, Etc.
Except
as set forth on Schedule 3.20,
(x)
neither the Company nor any entity controlled by the Company nor (y) to the
Knowledge of the Company (without making any special inquiry of the Related
Group, as hereinafter defined), no officer, director, manager or employee of
the
Company nor any parent, brother, sister, child or spouse of any such officer,
director, manager or employee (collectively, the “Related
Group”),
or
any entity controlled by anyone in the Related Group:
19
(i) owns,
directly or indirectly, any interest in (except for ownership for investment
pur-poses of less than 1% of the securities of any publicly held and traded
company), or received or has any right to receive payments from, or is an
officer, director, manager, member, employee, agent or consultant of, any Person
which is, or is engaged in business as, a competitor, lessor, lessee, supplier,
distributor, sales agent or customer of the Company;
(ii) owns,
directly or indirectly (other than through the ownership of stock or other
equity interest of the Company), in whole or in part, any tangible or intangible
property (including, but not limited to Intellectual Property) that the Company
uses in the conduct of business; or
(iii) is
owed
any amount by, has any cause of action or other claim whatsoever against, or
owes any amount to, the Company, except for claims in the ordinary course of
business such as for accrued vacation pay, accrued benefits under employee
benefit plans, and similar matters and agreements existing on the date
hereof.
Section
3.21 Bank
Accounts and Powers of Attorney.
Set
forth on Schedule 3.21
is an
accurate and complete list showing (a) the name of each bank in which the
Company has an account, credit line or safe deposit box and the names of all
persons authorized to draw thereon or to have access thereto, and (b) the names
of all persons, if any, holding powers of attorney from the Company and a
summary statement of the terms thereof.
Section
3.22 Compensation
of Employees. Schedule 3.22
is an
accurate and complete list showing: (a) the names and positions of all employees
and consultants, together with a statement of the current annual salary, the
bonus compensation paid or payable with respect to calendar years 2004 and
2005,
and the material fringe benefits of such employees and consultants; and (b)
the
names of all retired employees, if any, of the Company who are receiving or
entitled to receive any health care or life insurance benefits or any payments
from the Company not covered by any pension plan to which the Company is a
party, their ages and current unfunded pension rate, if any. The Company has
not, because of past prac-tices or previous commitments with respect to its
employees, established any rights on the part of any of its employees to
additional compensation with respect to any period after the Closing Date (other
than wage increases in the ordinary course of business). The present severance
and vacation policy of the Company is set forth on Schedule 3.22.
Section
3.23 No
Changes Since the Balance Sheet Date.
Except
as specifically stated on Schedule
3.23,
since
the Balance Sheet Date the Company has not: (i) incurred any liability or
obligation of any nature (whether accrued, absolute, con-tingent or otherwise),
except in the ordinary course of business; (ii) permitted any of its assets
to
be subjected to any Lien; (iii) sold, transferred or otherwise disposed of
any
assets except in the ordinary course of business; (iv) made any capital
expenditure or com-mit-ment therefor which, individually or in the aggregate,
exceeded $25,000; (v) declared or paid any dividends or made any distributions
to its members, or redeemed, purchased or otherwise acquired any equity interest
or any option, warrant or other right to purchase or acquire any equity interest
in the Company; (vi) made any bonus or profit sharing distribution; (vii)
increased or prepaid its indebtedness for borrowed money, except current
borrowings under credit lines listed on Schedule 3.8
from
banks in the ordinary course of business, or made any loan to any Person; (viii)
written down the value of any work-in-process, or written off as uncollectible
any notes or accounts receivable, except write-downs and write-offs in the
ordinary course of business, none of which, individually or in the aggregate,
is
material to the Company; (ix) granted any increase in the rate of wages,
salaries, bonuses or other remuneration of (A) any employee who, whether as
a
result of such increase or prior thereto, receives aggregate compensation from
the Company at an annual rate of $50,000 or more, or (B) except in the ordinary
course of business, of any other employee; (x) canceled or waived any claims
or
rights of material value; (xi) made any change in any method of accounting
procedures; (xii) otherwise con-ducted its business or entered into any
transaction, except in the usual and ordinary manner and in the ordinary course
of its business; (xiii) amended or terminated any agreement which is material
to
its business; (xiv) renewed, extended or modified any lease of real property,
or, except in the ordinary course of business, any lease of personal property;
(xv) adopted, amended or terminated any Plan; (xvi) agreed, whether or not
in
writing, to do any of the foregoing (except for transactions contemplated by
this Agreement); or (xvii) experienced or incurred any material adverse change
in the assets or liabilities, or in the business or condition, financial or
otherwise, or in the results of operations of the Company.
20
Section
3.24 Corporate
Controls.
Neither
the Company, nor, to the Knowledge of the Company, any officer, authorized
agent, employee, manager, member, consultant or any other Person, while acting
on behalf of the Company, has, directly or indirectly: used any corporate fund
for unlawful contribution, gift or other expense relating to political activity;
made any unlawful payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or campaigns from
corporate funds; established or maintained any unlawful or unrecorded fund
of
corporate monies or other assets; made any false or fictitious entry on its
books or records; made any bribe, rebate, payoff, influence payment, kickback,
or other unlawful payment to any Person, private or public, regardless of form,
whether in money, property, or services, to obtain favorable treatment in
securing business or to obtain special concessions, or to pay for favorable
treatment for business secured or for special con-cessions already obtained,
and
the Company has not participated in any illegal boycott or other similar illegal
practices affecting any of its actual or potential customers.
Section
3.25 Prepayment
for Services.
Except
as disclosed on Schedule
3.25,
the
Company has not prior to the Closing Date received any payments from any of
its
customers with respect to services to be rendered by the Company after the
Closing Date.
Section
3.26 Brokers.
No
broker, finder, agent or similar intermediary has acted on behalf of the Sellers
or the Company in connection with this Agreement or the transactions
contemplated hereby, and no brokerage commissions, finder’s fees or similar fees
or commissions are payable by the Company or the Sellers in connection therewith
based on any agreement, arrangement or understanding with any of
them.
Section
3.27 Copies
of Documents.
The
Company has caused to be made available for inspection and copying by the
Purchaser and its advisers, true, complete and correct copies of all documents
referred to in this Article III or in any Schedule. Summaries of all material
oral contracts contained in Schedule 3.8
are
complete and accurate in all material respects.
21
ARTICLE
IV
REPRESENTATIONS
OF THE PURCHASER
The
Purchaser represents, warrants and agrees to and with the Sellers as
follows:
Section
4.1 Existence
and Good Standing.
The
Purchaser is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware, with the full corporate power and
authority to own and operate its properties and to conduct its business, all
as
and in the places where such properties are now owned or operated or such
business is now being conducted.
Section
4.2 Execution
and Validity of Agreement.
The
Purchaser has the full corporate power and authority to execute and deliver
this
Agreement and to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery by the Purchaser
of
this Agreement, the performance by the Purchaser of its obligations hereunder
and the consummation of the transactions contemplated hereby have been duly
authorized by all required corporate action on behalf of the Purchaser. This
Agreement has been duly and validly executed and delivered by the Purchaser,
and
assuming due authorization, execution and delivery by the Sellers, constitutes
a
legal, valid and binding obligation of the Purchaser, enforceable against the
Purchaser in accordance with its terms, subject to laws of general application
relating to bankruptcy, insolvency, and the relief of debtors and rules of
law
governing specific performance, injunctive relief or other equitable
remedies.
Section
4.3 Non-Contravention;
Approvals and Consents.
4.3.1 Non-Contravention.
The
execution and delivery by the Purchaser of this Agreement, the performance
by
the Purchaser of its obligations hereunder and the consummation of the
transactions contemplated hereby, will not (a) violate, conflict with or result
in the breach of any provision of the certificate of incorporation or by-laws
(or other comparable corporate charter documents) of the Purchaser, or (b)
result in the violation by the Purchaser of any Laws or Orders of any
Governmental or Regulatory Authority, applicable to the Purchaser or any of
its
assets or properties, or (c) conflict with, result in a violation or breach
of,
constitute (with or without notice or lapse of time or both) a default under,
require the Purchaser to obtain any consent, approval or action of, make any
filing with or give any notice to any Person pursuant to, result in or give
to
any Person any right of payment or reimbursement, termination, cancellation,
modification or acceleration of, or result in the creation or imposition of
any
Lien upon any of the assets or properties of the Purchaser, under any of the
terms, conditions or provisions of any Instruments to which the Purchaser is
a
party or by which the Purchaser or any of its assets or properties is
bound.
22
4.3.2 Approvals
and Consents.
No
consent, approval, authorization or action of, registration or filing with,
or
notice to any Governmental or Regulatory Authority or other public or private
third party is necessary or required under any of the terms, conditions or
provisions of any Law or Order of any Governmental or Regulatory Authority
or
any Instrument to which the Purchaser is a party or by which the Purchaser
or
any of its assets or properties is bound, in connection with the execution
and
delivery by the Purchaser of this Agreement, the performance by the Purchaser
of
its obligations hereunder or the consummation of the transactions contemplated
hereby.
Section
4.4 Brokers.
No
broker, finder, agent or similar intermediary has acted on behalf of the
Purchaser or its affiliates in connection with this Agreement or the
transactions contemplated hereby, no brokerage commissions, finders’ fees or
similar fees or commissions are payable by the Purchaser or its affiliates
in
connection therewith based on any agreement, arrangement or understanding with
any of them.
Section
4.5 STI
Stock.
Each
share of STI Stock to be issued pursuant to the terms of this Agreement will
be
duly and validly authorized for issuance by Purchaser, and upon consummation
of
the transactions contemplated hereby will be duly and validly issued, fully
paid
and non-assessable, and not issued in violation of the preemptive rights of
any
past or present shareholder and will be free and clear of all Liens, other
than
restrictions existing under the terms of the Investment Representation
Certificate, the Escrow Agreement or the Purchaser’s certificate of
incorporation, and any restrictions imposed by applicable securities laws.
Each
share of the STI Common Stock to be issued upon conversion of the Series C
Preferred Stock will be duly and validly authorized for issuance by Purchaser,
and, upon conversion of the Series C Preferred Stock in accordance with the
Series C Certificate of Designations, will be duly and validly issued, fully
paid and non-assessable, and not issued in violation of the preemptive rights
of
any past or present shareholder and will be free and clear of all Liens, other
than restrictions existing under the terms of the Investment Representation
Certificate or the Purchaser’s certificate of incorporation, and any
restrictions imposed by applicable securities laws. All of the shares of STI
Stock to be issued pursuant to this Agreement and all shares of the STI Common
Stock to be issued upon conversion of the Series C Preferred Stock will be
issued in transactions exempted under all applicable securities laws, assuming
the accuracy and truthfulness of the Investment Representation Certificates
received from each of the Sellers. The Purchaser has reserved for issuance
all
shares of STI Common Stock issuable upon conversion of all shares of Series
C
Preferred Stock. There are a sufficient number of authorized and unissued shares
of STI Common Stock on the date hereof to permit conversion of all shares of
Series C Preferred Stock, conversion of all other outstanding securities
convertible into STI Common Stock and the exercise of all outstanding rights,
warrants and options exercisable into STI Common Stock.
23
Section
4.6 Financial
Statements and Reports.
The
Purchaser has filed all documents and reports it is required to file with the
Securities and Exchange Commission (the “Commission”)
since
December 31, 2003. As of their respective dates, such reports and statements
did
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. The
financial statements of the Purchaser included in such reports were prepared
in
accordance with GAAP applied on a consistent basis throughout the periods
involved and present fairly the financial position of the Purchaser as of the
dates and for the periods indicated therein, subject, in the case of interim
financial statements, to normal recurring year end adjustments. Since December
31, 2003, Purchaser has filed with the Commission in a timely manner all reports
required to be so filed by it or filed a Form 12b-25 in a timely manner and
filed the relevant report within the period permitted by Rule 12b-25 under
the
Securities Exchange Act of 1934, as amended.
Section
4.7 No
Restrictions.
There is
no action, suit, claim, or proceeding at law or inequity, on any arbitration
or
administrative or other proceeding or any investigation or inquiry by any
Governmental or Regulatory Authority, and no legal, administrative or
arbitration proceeding pending or, to the Purchaser’s Knowledge, threatened
against the Purchaser or any of the Purchaser’s properties, rights or assets,
with respect to the execution, delivery or performance of this agreement or
the
transactions contemplated hereby or any other agreement entered into by the
Purchaser in connection with the transactions contemplated hereby. Except as
disclosed in documents filed with the Commission and referred to in Section
4.6,
as of the date hereof there is no claim, action, proceeding or investigation
of
which the Purchaser has received written notice pending or, to the knowledge
of
the Purchaser, threatened against the Purchaser before any Governmental or
Regulatory Authority with respect to which, in the reasonable opinion of the
Purchaser there is a reasonable likelihood of a determination which will have
a
material adverse effect on the business, assets, properties or financial
condition of the Purchaser and its subsidiaries taken as a whole (“Purchaser
MAE”).
Section
4.8 Absence
of Certain Changes.
Since
June 30, 2006, there has not been, occurred or arisen (i) any change having
a
Purchaser MAE in the assets, liabilities, capitalization or working capital
of
the Purchaser, or (ii) any material loss or damage to any of the properties
of
the Purchaser which materially impairs the ability of the Purchaser to conduct
its business.
Section
4.9 Capitalization.
Prior
to
the filing of the Series C Certificate of Designations, the Purchaser had an
authorized capitalization consisting of (i) 100,000,000 shares of common stock,
$.001 par value per share, of which, to the knowledge of the Purchaser,
28,615,120 shares are issued and outstanding and no shares are held in the
treasury of the Purchaser and (ii) 12,150,000 shares of preferred stock, $.001
par value per share of which no shares have been designated and no shares are
issued or outstanding. Immediately following the Closing hereunder, assuming
the
issuance of the shares of STI Stock described in Section 2.1.1(ii), the
Purchaser shall have an authorized capitalization consisting of (i) 100,000,000
shares of common stock, $.001 par value per share, of which, to the knowledge
of
the Purchaser, 33,076,658 shares are issued and outstanding and no shares are
held in the treasury of the Purchaser and (ii) 12,150,000 shares of preferred
stock, $.001 par value per share of which 4,700,000 shares of preferred stock
have been designated as Series C Preferred Stock, of which 4,615,385 shares
are
issued and outstanding and no shares are held in the treasury of the
Purchaser. Except
as
set forth on Schedule
4.9,
there
are no outstanding subscriptions, options, warrants, rights (including “phantom
stock rights”), calls, commitments, understandings, conversion rights, rights of
exchange, plans or other agreements of any kind to which the Purchaser is a
party providing for the purchase, issuance or sale of any shares of the capital
stock of the Purchaser.
24
ARTICLE
V
CONDITION
PRECENDENT TO THE PURCHASER’S OBLIGATION TO CLOSE
The
Purchaser’s
obligation to purchase the Purchased Interests and the Purchased Warrants and
to
take the other actions required to be taken by the Purchaser at the Closing
is
subject to the satisfaction, at or prior to the Closing, of each of the
following conditions (any of which may be waived by the Purchaser, in whole
or
in part):
Section
5.1 Required
Approvals, Notices and Consents. The
Company and the Sellers shall have obtained or given, at no expense to the
Purchaser, and not have withdrawn or modified, all consents, approvals, waivers,
notices and other actions listed on Schedules
3.1.6 and
3.9.2
hereof
(including without limitation, all consents, approvals, waivers and notices
required under the contracts set forth on Schedule
3.8,
Real
Property Leases and Permits in order to permit the consummation of the
transactions contemplated by this Agreement without causing or resulting in
a
default, event of default, acceleration event or termination event under any
of
such contracts, Real Property Leases and Permits and without entitling any
party
to any of such contracts, Real Property Leases and Permits to exercise any
other
right or remedy adverse to the interests of the Purchaser or the Company
thereunder) in form and substance reasonably satisfactory to the Purchaser
and
its counsel.
Section
5.2 Surrender
of Certificates.
The
Sellers shall have delivered to the Purchaser certificate(s) representing all
of
the Purchased Interests and the Purchased Warrants to be acquired at the
Closing, together with such other documents and instruments, if any, as may
be
necessary to permit the Purchaser to acquire all of the Purchased Interests
and
the Purchased Warrants free and clear of any and all Liens.
Section
5.3 [INTENTIONALLY
OMITTED]
Section
5.4 Escrow
Agreement.
The
Sellers’ Representative shall have executed and delivered, on behalf of all of
the Sellers, an Escrow Agreement with the Purchaser and the Escrow Agent in
form
and substance reasonably satisfactory to the Purchaser and its counsel (the
“Escrow
Agreement”).
25
Section
5.5 Opinion
of Counsel.
The
Purchaser shall have received the opinion of Pepe & Hazard LLP, counsel to
the Company, dated the Closing Date, in form reasonably satisfactory to the
Purchaser and its counsel.
Section
5.6 Good
Standing Certificates.
The
Company shall have delivered to the Purchaser: (a) a copy of the Company’s
Certificate of Formation, including all amendments, certified by the Secretary
of State of the State of Delaware; and (b) a certificate from the Secretary
of
State of the State of Delaware and each state in which the Company is qualified
as a foreign limited liability company to do business to the effect that the
Company is in good standing in such state (in each case, together with the
applicable tax status certificate), in each case as of a date recent in time
to
the Closing reasonably acceptable to the Purchaser and its counsel.
Section
5.7 Secretary’s
Certificate.
The
Company shall have delivered to the Purchaser a certificate of the Secretary
of
the Company dated as of the Closing Date certifying: (i) that attached thereto
are (i) a true and complete copy of the Company’s Certificate of Formation,
including all amendments, as in effect on the Closing Date; and (ii) a true
and
complete copy of the Limited Liability Company Agreement of the Company, dated
as of January 1, 2003, including all amendments, as in effect on the Closing
Date.
Section
5.8 Investment
Representation Certificates.
Each of
the Sellers shall have delivered an Investment Representation Certificate
substantially in the form of Exhibit
B.
Section
5.9 Registration
Rights Agreement.
Each of
the Sellers shall have executed and delivered the
Registration Rights Agreement in the form of Exhibit
C.
Section
5.10 Certificate
of Designations.
The
Purchaser shall have filed the Series C Certificate of Designations as attached
hereto as Exhibit
A
with the
Secretary of State of the State of Delaware.
Section
5.11 Environmental
Report.
The
Company shall have obtained and delivered to the Purchaser a “Phase 1”
environmental site assessment report with respect to the Company’s Leased Real
Property.
Section
5.12 Fairness
Opinion.
The
Purchaser shall have obtained a fairness opinion satisfactory to the Board
of
Directors of the Purchaser as to the acquisition of the Purchased Interests
and
the Purchased Warrants hereunder, and such opinion shall not have been withdrawn
prior to the Closing.
Section
5.13 Legality.
No Law
or Order shall have been enacted, entered, promulgated or enforced by any
Governmental or Regulatory Authority which has the effect of (i) making either
the transactions contemplated hereby illegal or prohibiting their consummation
or (ii) creating a Material Adverse Effect on the Company or a Purchaser MAE
on
the Purchaser.
26
Section
5.14 Proceedings. All
proceedings to be taken in connection with the transactions contemplated by
this
Agreement and all documents incident thereto were reasonably satisfactory in
form and substance to the Purchaser and the Purchaser’s counsel, and the
Purchaser shall have received copies of all such documents and other evidences
as it or its counsel reasonably requested in order to establish the consummation
of such transactions and the taking of all proceedings in connection
therewith.
ARTICLE
VI
CONDITION
PRECENDENT TO THE SELLERS’ OBLIGATION TO CLOSE
Each
Seller’s
obligation to sell its Purchased Interests or Purchased Warrants and to take
the
other actions required to be taken by it at the Closing is subject to the
satisfaction, at or prior to the Closing, of each of the following conditions
(any of which may be waived by the Sellers’ Representative, in whole or in part,
on behalf of all Sellers):
Section
6.1 Certified
Resolutions.
The
Purchaser shall have delivered to the Company a copy of the resolutions duly
adopted by the Board of Directors of the Purchaser authorizing the execution,
delivery and performance of this Agreement and the transactions and other
agreements contemplated hereby, certified to by an officer of the
Purchaser.
Section
6.2 Escrow
Agreement.
The
Purchaser shall have executed and delivered an Escrow Agreement with the
Sellers’ Representative and the Escrow Agent in form and substance reasonably
satisfactory to the Sellers’ Representative and its counsel.
Section
6.3 Registration
Rights Agreement.
The
Purchaser shall have executed and delivered the Registration Rights Agreement
referred to in Section 5.8.
Section
6.4 Attorney
Client Privilege Letter.
Purchaser
shall have executed and delivered a letter agreement with Pepe & Hazard LLP
with respect to the preservation of the Company’s attorney client privilege
substantially in the form of Exhibit
D.
Section
6.5 Opinion
of Counsel.
The
Sellers shall have received the opinion of ▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP, counsel to
the Purchaser, dated the Closing Date, in
form
reasonably satisfactory to the Sellers’ Representative and its
counsel.
Section
6.6 Legality.
No Law
or Order shall have been enacted, entered, promulgated or enforced by any
Governmental or Regulatory Authority which has the effect of (i) making either
the transactions contemplated hereby illegal or prohibiting their consummation
or (ii) creating a Material Adverse Effect on the Company or a Purchaser MAE
on
the Purchaser.
27
Section
6.7 Proceedings. All
proceedings to be taken in connection with the transactions contemplated by
this
Agreement, and all documents incident thereto, were reasonably satisfactory
in
form and substance to the Seller’s Representative and its counsel, and the
Sellers’ Representative shall have received copies of all such documents and
other evidences as it or its counsel may reasonably request in order to
establish the consummation of such transaction and the taking of all proceedings
in connection therewith.
ARTICLE
VII
OTHER
AGREEMENTS
Section
7.1 Certain
Tax Matters.
(a) Company
Tax Returns.
The
Sellers and the Purchaser agree that Sellers’ Representative shall be the “tax
matters partner”, and the Sellers’
Representative
will file, on behalf of the Company, the Company’s income tax returns, for all
periods ending on or prior to the Closing Date (including without limitation
for
the period from January 1, 2006 through and including the Closing Date). Such
returns for the Company shall be prepared by the Company’s current outside
accountants, at the expense of the Company; provided that the amount of such
expense shall be accrued on the Closing Date Balance Sheet. The Sellers’
Representative
shall deliver such returns to the Purchaser for its approval prior to the filing
thereof, which approval shall not be unreasonably withheld or delayed. Without
limiting the generality of the foregoing, the Purchaser and the Sellers will
cause the Sellers’
Representative
to execute such consents and other documents as may be necessary or appropriate
in order to effect the foregoing under the Code and regulations promulgated
thereunder and under the laws of the State of Connecticut. The Purchaser shall
prepare or cause to be prepared and file or cause to be filed all Tax returns
for the Company that are filed for any period commencing after the Closing
Date.
Purchaser agrees that it will not amend any pre-closing tax return filed by
or
on behalf of the Company in a manner that would have an adverse financial impact
on the Sellers without the written consent of the Sellers unless the Purchaser
shall agree to hold the Sellers harmless therefrom.
(b) Tax
Cooperation.
The
Purchaser, on the one hand, and the Sellers’
Representative
and the Sellers, on the other, shall cooperate fully, as and to the extent
reasonably requested by the other party, in connection with the filing of Tax
returns pursuant to this Section 7.1 or any other tax returns relating to the
operations of the Company, and any audit, litigation or other proceeding with
respect to Taxes. Such cooperation shall include the retention and (upon the
other party’s request) the provision of records and information which are
reasonably relevant to any such audit, litigation or other proceeding. The
Purchaser and the Sellers agree that the Company will retain all books and
records with respect to Tax matters pertinent to the Company relating to any
taxable period beginning before the Closing Date until the expiration of the
statute of limitations (and, to the extent notified by the Purchaser, and
extensions thereof) of the respective taxable periods, and to abide by all
record retention agreements entered into with any taxing authority. With regard
to tax returns for all periods ending on or prior to the Closing Date, Purchaser
agrees to immediately provide Sellers with a copy of all communications from
the
Internal Revenue Service and any state taxing authority regarding federal or
state income tax matters applicable to any taxable period preceding the Closing
Date.
28
Section
7.2 Insurance.
Following
the Closing, the Purchaser shall be required to maintain the Company’s
Directors’, Officers’, Insured Entity and Employment Practices Liability
Insurance with at least the same level of coverage for at least three (3) years
following the Closing Date or, at the Purchaser’s option, replacement insurance
coverage providing at least the same benefits and coverage as such
policy.
Section
7.3 Environmental
Matters - Connecticut Transfer Act.
The Purchaser
and the Sellers agree that, to the extent the Leased Real Property or the
business being transferred constitutes or is deemed to be an “establishment”
under the provisions of the Connecticut Transfer Act, Connecticut General
Statutes Section 22a-134 et seq. (the “Transfer
Act”),
then
any filing necessary shall be done at the cost and expense of the Company,
and
the Company shall provide the Certification as required pursuant to the Transfer
Act at the Closing. To ensure compliance with the applicable provisions of
the
Transfer Act, the Company shall (a) undertake, at its cost and expense, all
due
diligence required to prepare, (b) prepare and file with the Connecticut
Department of Environmental Protection (“CTDEP”)
prior
to the Closing, (c) be the certifying party with respect to, and (d ) pay all
filing costs associated with, the applicable form (including any Environmental
Condition Assessment Form) required by the Transfer Act (the “Transfer
Act Filing”).
To
the extent that a Form III or a Form IV is filed with the CTDEP, the Purchaser
agrees to require the Company to make all submissions, post all public notices
and otherwise comply with all requirements of the CTDEP relating to
post-transfer investigation, cleanup and monitoring. All costs associated with
preparing for and making the Transfer Act Filing shall be paid for by the
Company prior to the Closing or shall be accrued for as a liability on the
Closing Date Balance Sheet. As a result of the foregoing, the Purchaser and
the
Sellers agree that the Company shall be the certifying party on any Form III
or
Form IV Transfer Act Filing and shall be the party responsible for effecting
any
cleanup of hazardous materials or hazardous waste, if any, as required pursuant
to the Transfer Act Filing. Subject to the limitations set forth in Article
VIII, the Purchaser shall be entitled to make a claim for indemnification
pursuant to Article VIII for the cost of such cleanup.
Section
7.4 Release.
Effective
upon the Closing, each Seller hereby forever releases and discharges the Company
from any and all liabilities, losses, claims, demands, obligations, rights,
actions, causes of action, proceedings or suits of any kind or nature, debts,
sums of money, accounts, bonds, bills, covenants, contracts, agreements,
promises, damages, judgments, executions and demands whatsoever, in law or
equity (collectively, “Claims”),
which
any such Seller or any of such Seller's affiliates, successors, predecessors
and
assigns ever had, now have or will ever have in the future, upon or by reason
of
any matter, cause or thing whatsoever, whether presently known or unknown,
against the Company; provided, however, that the release contained herein shall
not apply to any covenants and agreements of the Company arising under this
Agreement, or any other agreement executed and delivered at the
Closing.
29
ARTICLE
VIII
SURVIVAL;
INDEMNITY
Section
8.1 Survival.
Notwithstanding any right of any party hereto fully to investigate the affairs
of any other party, and notwithstanding any Knowledge of facts determined or
determinable pursuant to such investigation or right of investigation, each
party hereto shall have the right to rely fully upon the representations,
warranties, covenants and agreements of the other parties contained in this
Agreement and the Schedules hereto, or in any document delivered at the Closing
in connection with this Agreement. Subject to the provisions of this Article
VIII, the respective representations, warranties, covenants and agreements
of
the Sellers and the Purchaser contained in this Agreement shall survive the
Closing.
Section
8.2 Obligation
of the Sellers to Indemnify.
8.2.1 General
Indemnity.
The
Sellers hereby severally agree, and not jointly and severally, to indemnify
the
Purchaser and its officers, directors, employees, agents, stockholders,
successors and affiliates (individually, a “Purchaser
Indemnified Party”
and
collectively, the “Purchaser
Indemnified Parties”)
against, and to protect, save and keep harmless the Purchaser Indemnified
Parties from, and to assume liability for, the payment of all liabilities
(including liabilities for Taxes), obligations, losses, damages, penalties,
claims, actions, suits, judgments, settlements, out-of-pocket costs, expenses
and disbursements (including reasonable costs of investigation, and reasonable
attorneys’, accountants’ and expert witnesses’ fees) of whatever kind and nature
(collectively, “Losses”),
that
may be imposed on or incurred by any Purchaser Indemnified Party as a
consequence of or in connection with: (i) any misrepresentation, inaccuracy
or breach of any representation or warranty of the Company contained in Article
III.B hereof; (ii) any breach of or failure by any of the Sellers to comply
with or perform any agreement or covenant contained in this Agreement or in
any
other document, agreement or instrument executed in connection with the
transactions contemplated hereby; (iii) any litigation or claim disclosed on
Schedule 3.10 of this Agreement; (iv) any Taxes due and owing by the Company
with respect to any period ending on or prior to the Closing Date, or (v) any
costs incurred by the Purchaser pursuant to Section 7.3 or by the Company
following the Closing pursuant to Section 7.3. The term “Losses” as used herein
is not limited to matters asserted by third parties against an Indemnified
Party
but includes Losses incurred or sustained by an Indemnified Party in the absence
of third party claims.
30
8.2.2
Special
Indemnity.
Each of
the Sellers hereby severally agrees, and not jointly and severally, to indemnify
the Purchaser Indemnified Parties against, and to protect, save and keep
harmless the Purchaser Indemnified Parties from, and to assume liability for,
the payment of all Losses that may be imposed on or incurred by any Purchaser
Indemnified Party as a consequence of or in connection with such Seller’s
misrepresentation, inaccuracy or breach of a representation or warranty
contained in Article III.A. hereof.
Section
8.3 Obligation
of the Purchaser to Indemnify.
The
Purchaser hereby agrees to indemnify the Sellers and
their
respective officers, directors, managers, employees, agents, stockholders,
members, successors and affiliates
(collectively, the “Seller
Indemnified Parties”)
(the
Purchaser Indemnified Parties and the Seller Indemnified
Parties collectively,
the “Indemnified
Parties”)
against, and to protect, save and keep harmless the Seller Indemnified
Parties
from,
and to assume liability for, the payment of all Losses that may be imposed
on or
incurred by the Seller Indemnified
Parties
as a
consequence of or in connection with: (i) any misrepresentation, inaccuracy
or breach of any representation or warranty contained
in Article IV hereof (disregarding, for purposes of this Section 8.3, any
knowledge qualifier contained in Section 4.9); or (ii) any breach of or failure
by the Purchaser to comply with or perform any agreement or covenant by the
Purchaser contained in this Agreement or
in any
other document, agreement or instrument executed in connection with the
transactions contemplated hereby.
Section
8.4 Escrow
Amount Exclusive Remedy; Right of Offset.
The
Purchaser shall be entitled to offset any claim for indemnity made pursuant
to
Section 8.2, as to which notice has been given pursuant to Section 8.5,
against the Escrow Amount as provided herein and in the Escrow Agreement. If
any
such claims for indemnity are resolved in favor of the Purchaser by mutual
agreement or otherwise, the Escrow Agent shall pay such amount to the Purchaser
out of the Escrow Amount based on the lesser of (i) the Current Market Price
of
STI Common Stock as of the date the indemnity claim was made by the Purchaser
and (ii) the Current Market Price of STI Common Stock as of the date the
indemnity claim is finally resolved in favor of the Purchaser. The Purchaser’s
sole and exclusive remedy for breaches and non performance under this Agreement
shall be limited to its rights of indemnification under this Article VIII and,
subject to the immediately following sentence, the sole recourse for
indemnification hereunder shall be limited to its right of offset against the
Escrow Amount. Notwithstanding the foregoing, the Purchaser shall not be limited
to the Escrow Amount in satisfaction of its rights to indemnification hereunder
in the event of (i) any fraudulent acts or omissions or intentional
misrepresentations committed by any Seller (including without limitation, fraud
in connection with the transactions contemplated hereby), (ii) Losses relating
to a breach of any representation or warranty contained in Section 3.1. or
(iii)
any right to indemnification under Section 8.2.2; provided, however, the
Purchaser shall first seek recourse against the Escrow Amount.
31
Section
8.5 Indemnification
Procedures.
8.5.1 Non-Third
Party Claims.
In
the
event that any Person entitled to indemnification under this Agreement (an
“Indemnified Party”)
asserts a claim for indemnification, which does not involve a Third Party Claim
(as defined in Section 8.5.2 below), against which a Person is required to
provide indemnification under this Agreement (an “Indemnifying
Party”),
the
Indemnifying Party may acknowledge and agree by notice to the Indemnified Party
in writing to satisfy such claim within 20 days of receipt of notice of such
claim from the Indemnified Party. In the event that the Indemnifying Party
disputes such claim, the Indemnifying Party shall provide written notice of
such
dispute to the Indemnified Party within 20 days of receipt of written notice
of
such claim, setting forth a reasonable basis of such dispute. In the event
that
the Indemnifying Party shall fail to provide written notice to the Indemnified
Party within 20 days of receipt of notice from the Indemnified Party that the
Indemnifying Party either acknowledges and agrees to pay such claim or disputes
such claim, the Indemnifying Party shall be deemed to have acknowledged and
agreed to pay such claim in full and to have waived any right to dispute such
claim. Once the Indemnifying Party has acknowledged and agreed to pay any claim
pursuant to this Section 8.5.1, or once any dispute under this Section 8.5.1
has
been finally resolved in favor of indemnification by a court or other tribunal
of competent jurisdiction, the Indemnifying Party shall pay the amount of such
claim to the Indemnified Party within 10 days of the date of acknowledgement
or
resolution, as the case may be, to such account and in such manner as is
designated in writing by the Indemnified Party.
8.5.2 Third-Party
Claims.
(a) In
the
event that any Indemnified Party asserts a claim for indemnification or receives
notice of the assertion of any claim or of the commencement of any action or
proceeding by any Person who is not a party to this Agreement or an affiliate
of
a party to this Agreement (a “Third
Party Claim”)
against an Indemnifying Party, the Indemnified Party shall give written notice
together with a statement of any available information regarding such claim
to
the Indemnifying Party (the “Claims
Notice”)
within
30 days after learning of such claim (or within such shorter time as may be
necessary to give the Indemnifying Party a reasonable opportunity to respond
to
such claim). The Indemnifying Party shall have the right, upon written notice
to
the Indemnified Party (the “Defense
Notice”)
within
15 days after receipt from the Indemnified Party of the Claims Notice, which
Defense Notice by the Indemnifying Party shall specify the counsel it will
appoint to defend such claim (“Defense
Counsel”),
to
conduct at its expense the defense against such claim in its own name, or if
necessary in the name of the Indemnified Party; provided, however, that the
Indemnified Party shall have the right to approve the Defense Counsel, which
approval shall not be unreasonably withheld or delayed, and in the event the
Indemnifying Party and the Indemnified Party cannot agree upon such counsel
within 10 days after the Defense Notice is provided, then the Indemnifying
Party
shall propose an alternate Defense Counsel, which shall be subject again to
the
Indemnified Party’s approval which approval shall not be unreasonably withheld
or delayed. If the parties still fail to agree on the Defense Counsel, then,
at
such time, they shall mutually agree in good faith on a procedure to determine
the Defense Counsel.
32
(b) In
the
event that the Indemnifying Party shall fail to give the Defense Notice within
such 30 day period, it shall be deemed to have elected not to conduct the
defense of the subject claim, and in such event the Indemnified Party shall
have
the right to conduct the defense and to compromise and settle the claim without
prior consent of the Indemnifying Party and the Indemnifying Party will be
liable for all reasonable costs, expenses, settlement amounts or other Losses
paid or incurred in connection therewith.
(c) In
the
event that the Indemnifying Party disputes the claim for indemnification against
it, such Indemnifying Party shall notify the Indemnified Party to such effect
within 15 days after receipt of the Claims Notice (or within such shorter time
as may be necessary to give the Indemnified Party a reasonable opportunity
to
respond to such Third Party Claim). In such event the Indemnified Party shall
have the right to conduct the defense and to compromise and settle such Third
Party Claim, with the prior consent of the Indemnifying Party (which consent
will not be unreasonably withheld or delayed), and, once such dispute has been
finally resolved in favor of indemnification by a court or other tribunal of
competent jurisdiction or by mutual agreement of the Indemnified and
Indemnifying Party, subject to the provisions of Section 8.6, the Indemnifying
Party shall within 10 days of the date of such resolution or agreement, pay
to
the Indemnified Party all reasonable costs, expenses, settlement amounts or
other Losses paid or incurred by the Indemnified Party in connection with such
Third Party Claim including the costs and expenses (including, without
limitation, reasonable attorneys fees and expenses) incurred by the Indemnified
Party in obtaining indemnification hereunder.
(d) In
the
event that the Indemnifying Party does deliver a Defense Notice and thereby
elects to conduct the defense of the subject claim, the Indemnifying Party
shall
be entitled to have the exclusive control over the defense and settlement of
the
subject claim and the Indemnified Party will cooperate with and make available
to the Indemnifying Party such assistance and materials as it may reasonably
request, all at the expense of the Indemnifying Party; the Indemnified Party
shall have the right at its expense to participate in the defense assisted
by
counsel of its own choosing at its expense. In such an event, the Indemnifying
Party will not settle the subject claim without the prior written consent of
the
Indemnified Party, which consent will not be unreasonably withheld or delayed.
(e) Without
the prior written consent of the Indemnified Party, the Indemnifying Party
will
not enter into any settlement of any Third Party Claim or cease to defend
against such claim, if pursuant to or as a result of such settlement or
cessation, (i) injunctive relief or specific performance would be imposed
against the Indemnified Party, or (ii) such settlement or cessation would lead
to liability or create any financial or other obligation on the part of the
Indemnified Party for which the Indemnified Party is not entitled to
indemnification hereunder.
(f) If
an
Indemnified Party refuses to consent to a bona fide offer of settlement which
provides for a full release of the Indemnified Party and its affiliates and
solely for a monetary payment which the Indemnifying Party wishes to accept,
the
Indemnified Party may continue to pursue such matter, free of any participation
by the Indemnifying Party, at the sole expense of the Indemnified Party. In
such
an event, the obligation of the Indemnifying Party shall be limited to the
amount of the offer of settlement which the Indemnified Party refused to accept
plus the costs and expenses of the Indemnified Party incurred prior to the
date
the Indemnifying Party notified the Indemnified Party of the offer of
settlement.
33
(g) Notwithstanding
clause (d) above, the Indemnifying Party shall not be entitled to control,
but
may participate in, and the Indemnified Party shall be entitled to have sole
control over, the defense or settlement of any claim (i) that seeks a temporary
restraining order, a preliminary or permanent injunction or specific performance
against the Indemnified Party, (ii) to the extent such claim involves criminal
allegations against the Indemnified Party, (iii) that if unsuccessful, would
set
a precedent that would have a Material Adverse Effect on, the business or
financial condition of the Indemnified Party, (iv) if such claim would impose
liability on the part of the Indemnified Party for which the Indemnified Party
is not entitled to indemnification hereunder, or (v) if such claim involves
any
customer or supplier of the Purchaser or any of its subsidiaries or affiliates
and the Purchaser determines, in its sole discretion, that the manner in which
the defense of such claim is conducted could have a Material Adverse Effect
on
the relationship between such customer or supplier and the Purchaser or any
of
its subsidiaries or affiliates. In such an event, the Indemnifying Party will
still have all of its obligations hereunder provided that the Indemnified Party
will not settle the subject claim without the prior written consent of the
Indemnifying Party, which consent will not be unreasonably withheld or delayed.
(h) Any
final
judgment entered or settlement agreed upon in the manner provided herein shall
be binding upon the Indemnifying Party, and shall conclusively be deemed to
be
an obligation with respect to which the Indemnified Party is entitled to prompt
indemnification hereunder.
(i) A
failure
by an Indemnified Party to give timely, complete or accurate notice as provided
in this Section 8.5 will not affect the rights or obligations of any party
hereunder except and only to the extent that, as a result of such failure,
any
party entitled to receive such notice was deprived of its right to recover
any
payment under its applicable insurance coverage or was otherwise directly and
materially damaged as a result of such failure to give timely
notice.
8.5.3 Control
by the Purchaser.
All
decisions and determinations to be made by the Purchaser and/or a Purchaser
Indemnified Party under Article VIII shall be made by the Purchaser in the
name
of and on behalf of the Purchaser or such other Purchaser Indemnified Party
and
all such decisions and determinations shall be binding upon the parties hereto
and such Purchaser Indemnified Party.
8.5.4 Treatment.
All
parties to this Agreement agree that any indemnification by the Sellers of
the
Purchaser hereunder is intended to be, and shall be, treated by each of such
parties as an adjustment to purchase price for all purposes (including tax
purposes).
34
Section
8.6 Limitations
On and Other Matters Regarding Indemnification.
8.6.1 Indemnity
Cushion and Cap.
(a)
The
Sellers shall not have any liability to any Purchaser
Indemnified Party with respect to Losses arising out of any of the matters
referred to in Section 8.2.1(i) until such time as the amount of such liability
shall exceed $50,000 in the aggregate (in which case the Sellers shall be liable
for all Losses in excess of $50,000); provided, however, that this Section
8.6.1(a) shall not apply to Losses relating to a breach of any representation
or
warranty contained in Sections 3.3, 3.6, 3.11, 3.15.3, 3.19 or 3.26 or any
other
provision in this Agreement relating to Taxes due on or prior to the Closing
Date.
(b) Subject
to Section 8.4, the maximum aggregate liability of each Seller for indemnity
payments under Section 8.2.1 shall be an amount equal to such Seller’s
proportionate share of the Escrow Amount; provided, however, in the event,
by
application of Section 8.4, the maximum
aggregate liability of a Seller for indemnity payments under Section 8.2.1
is
not limited to such Seller’s proportionate share of the Escrow Amount, the
Seller’s maximum liability shall be limited to the amount of such Seller’s
participation in the aggregate Purchase Price.
8.6.2 Termination
of Indemnification Obligations. The
indemnity obligations of the Sellers under Section 8.2 and of the Purchaser
under Section 8.3 shall terminate on such date that is eighteen months
after the Closing Date except (i)
as to
matters as to which the applicable Indemnitee has made a claim for
indemnification on or prior to such date specifically addressing an actual
claim
or demand, (ii)
as to
matters as to which the applicable Indemnitee has suffered Losses arising out
of
the Indemnifying Party’s fraudulent acts or omissions or intentional
misrepresentations, and (iii)
in the
case of the indemnity obligations of the Sellers, with respect to any claim
pertaining to a misrepresentation, inaccuracy or a breach of warranty under
Sections 3.1, 3.3, 3.6, 3.11, 3.15.3, 3.19 or 3.26, or a claim under any other
Section of this Agreement relating to the payment and reporting of Taxes by
the
Company. The obligation to indemnify referred to in:
(a) the
preceding clause (i) shall survive the expiration of such period until such
claims are finally resolved and any obligations with respect thereto are fully
satisfied;
(b) the
preceding clauses (ii) and (iii) shall terminate 90 days after the expiration
of
the relevant Federal, state or local statute of limitations, except as to
matters as to which any Indemnified Party has made a claim for indemnification
on or prior to such date, in which case the right to indemnification with
respect thereto shall survive the expiration of any such period until such
claim
is finally resolved and any obligations with respect thereto are fully
satisfied.
(c) Each
of
the limitations set forth above in Section 8.6.2 shall in no event:
35
(i)
apply
to
any Losses incurred by a Purchaser
Indemnified Party which relate, directly or indirectly, to:
(A)
any
fraudulent acts or omissions or intentional misrepresentations committed by
the
Company or any Seller (including without limitation, fraud in connection with
the transactions contemplated hereby and any fraudulent acts by any officer,
director, employee, agent or equity holder of the Company); or
(B)
any
indemnification obligation under Sections 8.2.1(ii), 8.2.1(iii), 8.2.1(iv),
8.2.1(v) or 8.2.2;
(ii)
apply
to
any Losses incurred by a Seller Indemnified Party which relate, directly or
indirectly, to:
(A)
any
fraudulent acts or
omissions or intentional misrepresentations
committed by the
Purchaser (including
without limitation, fraud in connection with the transactions contemplated
hereby and any fraudulent acts by any officer, director, employee, agent or
equity holder of the
Purchaser);
or
(B)
any
indemnification obligation under Section 8.3(ii).
ARTICLE
IX
MISCELLANEOUS
Section
9.1 Expenses.
The
Purchaser and the Sellers shall pay all of their own expenses relating to the
transactions contemplated by this Agreement, including, without limitation,
the
fees and expenses of their respective counsel and financial advisers;
provided,
that,
(i) the
Company shall pay $37,979.75 on the Closing Date to Pepe & Hazard LLP in
respect of outstanding invoices for its representation of the Company’s Special
Committee of its Board of Managers in connection with this Agreement and (ii)
the Purchaser shall pay to Pepe & Hazard LLP on behalf of the Sellers
$150,000 of Pepe & Hazard LLP’s total invoice within 15 days following the
Closing for the Sellers’ legal fees and expenses incurred prior to the Closing
from such firm’s representation of the Sellers in connection with the
transactions described herein. To the extent that the Purchaser fails to timely
make the payment referred to in (ii) above, the Purchaser also shall pay
interest at the rate of 18% per annum in respect of such payment until paid
and
costs of collection (including attorneys fees), and the Company hereby
guarantees payment of such amount. Although it is anticipated that the Purchaser
will make timely payment, in the unlikely event that it does not, the Sellers
agree to pay their pro rata portion of the unpaid balance of Pepe & Hazard
LLP’s fees and expenses related to the transactions described herein including,
but not limited to, fees and expenses in excess of $150,000. Sellers hereby
confirm their obligation to pay all such fees and expenses in the event of
non-payment by the Purchaser upon the redemption of the Series C Preferred
Stock
by Purchaser and in any case no later than December 15, 2006.
Section
9.2 Governing
Law; Consent to Jurisdiction.
(a)
All
questions concerning the construction, interpretation and validity of this
Agreement, and all matters relating hereto, shall be governed by and construed
and enforced in accordance with the laws of the State of New York, without
giving effect to any choice or conflict of law provision or rule (whether in
the
State of New York or any other jurisdiction) that would cause the application
of
the laws of any jurisdiction other than the State of New York.
36
(b) Each
of
the parties hereto irrevocably submits to the exclusive jurisdiction of the
United States District Court for the Southern District of New York located
in
the borough of Manhattan in the City of New York, or if such court does not
have
jurisdiction, the Supreme Court of the State of New York, New York County,
for
the purposes of any suit, action or other proceeding arising out of this
Agreement or any transaction contemplated hereby (except that the Company and
Sellers also consent to jurisdiction of any state and federal courts in the
State of Connecticut in the event of an action by Pepe & Hazard LLP pursuant
to Section 9.1 hereof). Each of the parties hereto further agrees that service
of any process, summons, notice or document by U.S. registered mail to such
party’s respective address set forth in Section 9.8 shall be effective service
of process for any action, suit or proceeding with respect to any matters to
which it has submitted to jurisdiction as set forth above in the immediately
preceding sentence. Each of the parties hereto irrevocably and unconditionally
waives any objection to the laying of venue of any action, suit or proceeding
arising out of this Agreement or the transactions contemplated hereby in (i)
the
United States District Court for the Southern District of New York or (ii)
the
Supreme Court of the State of New York, New York County, and hereby further
irrevocably and unconditionally waives and agrees not to plead or claim in
any
such court that any such action, suit or proceeding brought in any such court
has been brought in an inconvenient forum.
Section
9.3 “Person”
Defined.
“Person”
shall mean and include an individ-ual, a company, a joint venture, a
corporation, a limited liability company, a limited liability partnership,
a
trust, an unincor-porated organization and a government or other department
or
agency thereof.
Section
9.4 “Knowledge”
Defined.
Where
any representation and warranty contained in this Agreement is expressly
qualified by reference to the knowledge of a Seller who is a natural person,
such term shall be limited to the actual knowledge of such Seller and unless
otherwise stated such knowledge that would have been discovered by such Seller
after reasonable inquiry. Where any representation and warranty contained in
this Agreement is expressly qualified by reference to the knowledge of a Seller
that is an entity, such term shall be limited to the actual knowledge of the
directors, managers, executive officers or general partners, or equivalent
Persons of such Seller responsible for managing its affairs. Where any
representation and warranty contained in this Agreement is expressly qualified
by reference to the knowledge of the Purchaser, such term shall be limited
to
the actual knowledge of the executive officers of the Purchaser. Where any
representation and warranty contained in this Agreement is expressly qualified
by reference to the knowledge of the Company, such term shall be limited to
the
actual knowledge of any of ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ or ▇▇▇▇▇▇▇
▇▇▇▇▇.
37
Section
9.5 “Affiliate”
Defined.
As used
in this Agreement, an “affiliate” of any Person, shall mean any Person that
directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with such Person.
Section
9.6 Captions.
The
Article and Section captions used herein are for refer-ence purposes only,
and
shall not in any way affect the meaning or interpretation of this
Agreement.
Section
9.7 Publicity.
Subject
to the provisions of the next sentence, no party to this Agreement shall, issue
any press release or other public document or make any public statement relating
to this Agreement or the matters contained herein without obtaining the prior
written approval of the Purchaser and the Sellers’ Representative.
Notwithstanding the foregoing, the foregoing provision shall not apply to the
extent that the Purchaser or an affiliate of the Purchaser is required to make
any announcement relating to or arising out of this Agreement by virtue of
the
federal securities laws of the United States or the rules and regulations
promulgated thereunder or other rules of any stock exchange on which the
Purchaser’s securities are then listed, or any announcement by any party or the
Company pursuant to applicable law or regulations.
Section
9.8 Notices.
Unless
otherwise provided in this Agreement, any notice, request, instruction or other
document to be given hereunder by any party to any other party shall be in
writing and shall be deemed to have been given (a)
upon
personal delivery, if delivered by hand, (b)
three
days after the date of deposit in the mails, postage prepaid, if mailed by
certified or registered mail, or (c)
the
next business day if sent by facsimile transmission (if transmission is
electronically confirmed) or by a prepaid overnight courier service, and in
each
case at the respective addresses or numbers set forth below or such other
address or number as such party may have fixed by notice:
If
to the
Purchaser, addressed to:
Solomon
Technologies, Inc.
▇▇▇▇
▇&▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention:
Chief Financial Officer
Fax:
(▇▇▇) ▇▇▇-▇▇▇▇
with
a
copy to:
▇▇▇▇▇
& ▇▇▇▇▇▇▇ LLP
▇▇▇▇
▇▇▇▇▇▇▇▇
▇▇▇
▇▇▇▇,
▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Fax: (▇▇▇)
▇▇▇-▇▇▇▇
and
38
If
to the
Sellers, to the Sellers’ Representative, currently:
Integrated
Power Systems LLC
c/o
Pepe
& Hazard LLP
▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇
▇▇▇▇▇
▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇-▇▇▇▇
Attention:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Fax:
(▇▇▇) ▇▇▇-▇▇▇▇
Section
9.9 Parties
in Interest.
This
Agreement may not be transferred, assigned, pledged or hypothecated by any
party
hereto, other than by operation of law. This Agreement shall be binding upon
and
shall inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, successors and assigns.
Section
9.10 Severability.
In the
event any provision of this Agreement is found to be void and unenforceable
by a
court of competent jurisdiction, the remaining provisions of this Agreement
shall never-theless be binding upon the parties with the same effect as though
the void or unenforceable part had been severed and deleted.
Section
9.11 Counterparts.
This
Agreement may be executed in two or more counterparts, all of which taken
together shall constitute one instrument.
Section
9.12 Entire
Agreement.
This
Agreement, including the other documents referred to herein and the Exhibits
and
Schedules hereto which form a part hereof, contains the entire understanding
of
the parties hereto with respect to the subject matter contained herein and
therein. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
Section
9.13 Amendments.
This
Agreement may not be amended, supplemented or modified orally, but only by
an
agreement in writing signed by the Purchaser and the Sellers’
Representative.
Section
9.14 Third
Party Beneficiaries. Each
party hereto intends that this Agreement shall not benefit or create any right
or cause of action in or on behalf of any person other than the parties hereto
and their respective successors and assigns as permitted under Section
9.9.
Section
9.15 Representative.
The
Sellers hereby appoint IPS to act as the “Sellers’
Representative”
as
(i)
the
agent and true and lawful attorney-in-fact of each Seller, with full power
of
substitution, and with full capacity and authority in its sole discretion,
to
act in the name of and for and on behalf of each Seller holder in connection
with all matters arising out of, resulting from, contemplated by or related
or
incident to this Agreement and the Closing contemplated herein and (ii)
the
agent for service of process for each Seller and the Sellers irrevocably consent
to the service of any and all process in any action or proceeding arising out
of
or relating to this Agreement by the delivery of such process to the
Sellers’
Representative.
Without limiting the generality of the foregoing, the power of the Sellers’
Representative
shall include the power to represent each Seller with respect to all aspects
of
this Agreement, which power shall include, without limitation, the power to
(i)
waive
any and all conditions of this Agreement, (ii)
amend
this Agreement and any agreement executed in connection herewith in any respect,
(iii)
bring,
assert, defend, negotiate or settle any claims or actions for indemnity pursuant
to this Agreement, (iv)
retain
legal counsel and be reimbursed by the Sellers for all fees, expenses and other
charges of such legal counsel, (v) designate an agent to receive, hold and
disburse monies or securities paid or delivered hereunder; (vi)
receive notices or other communications, (vii)
deliver any notices, certificates or other documents required and (viii)
take
all such other action and to do all such other things as the Sellers’
Representative
deems necessary or advisable with respect to this Agreement, including, without
limitation, to provide all approvals and consents of the Sellers contemplated
hereunder. The Purchaser shall have the absolute right and authority to rely
upon the acts taken or omitted to be taken by the Sellers’
Representative
on behalf of the Sellers and Purchaser shall have no duty to inquire as to
the
acts and omissions of the Sellers’
Representative.
In the event the Sellers’
Representative
refuses to, or is no longer capable of, serving as the Sellers’
Representative
hereunder, the Sellers by approval of those holders entitled to receive at
least
65% of the Purchase Price hereunder shall promptly appoint a successor
Sellers’
Representative
who shall thereafter be a successor Sellers’
Representative
hereunder and the Sellers’
Representative
shall serve until such successor is duly appointed and qualified to act
hereunder.
39
Section
9.16 No
Strict Construction.
The
language used in this Agreement will be deemed to be the language chosen by
the
parties to express their mutual intent, and no rule of law or contract
interpretation that provides that in the case of ambiguity or uncertainty a
provision should be construed against the draftsperson will be applied against
any party to this Agreement.
Section
9.17 Further
Assurances.
The
parties agree (a) to furnish upon request to each other such further
information, (b) to execute and deliver to each other such other documents,
and
(c) to do such other acts and things, all as the other party may reasonably
request for the purpose of carrying out the intent of this Agreement and the
documents referred to in this Agreement.
*
* *
*
Signature
Pages Follow
40
IN
WITNESS WHEREOF,
the
parties hereto have executed this Agreement, on the day and year first above
written.
| SOLOMON TECHNOLOGIES, INC. | ||
| |
|
|
| By: | /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇. | |
| Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇. | ||
| Title: President | ||
41
SIGNATURE
PAGE
TO
IN
WITNESS WHEREOF, the
undersigned has executed this Agreement on the day and year first above
written.
| COMPANY: | |||
| TECHNIPOWER LLC | |||
| /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇ | |||
| By: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇ | |||
| Its: President & CEO |
42
SIGNATURE
PAGE
TO
IN
WITNESS WHEREOF, the
undersigned has executed this Agreement on the day and year first above
written.
| MEMBER: | |||
| POWER DESIGNS, INC. | |||
| /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇ | |||
| By: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇ | |||
| Its: President | |||
43
SIGNATURE
PAGE
TO
IN
WITNESS WHEREOF, the
undersigned has executed this Agreement on the day and year first above
written.
| MEMBER: | |||
| INTEGRATED POWER SYSTEMS LLC | |||
| /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇ | |||
| By: ▇▇▇▇▇▇▇ ▇▇▇▇▇ | |||
| Its: President | |||
44
SIGNATURE
PAGE
TO
IN
WITNESS WHEREOF, the
undersigned has executed this Agreement on the day and year first above
written.
| MEMBER: | |||
| THE VANTAGE PARTNERS | |||
| /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇ | |||
| By: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇ | |||
| Its: President | |||
45
SIGNATURE
PAGE
TO
IN
WITNESS WHEREOF, the
undersigned has executed this Agreement on the day and year first above
written.
| WARRANTHOLDER: | |||
| /s/ ▇▇▇▇▇▇▇ ▇’▇▇▇▇▇▇ | |||
| ▇▇▇▇▇▇▇ ▇’▇▇▇▇▇▇ |
46
SIGNATURE
PAGE
TO
IN
WITNESS WHEREOF, the
undersigned has executed this Agreement on the day and year first above
written.
| WARRANTHOLDER: | |||
| JMC VENTURE PARTNERS LLC | |||
| /s/ G. ▇▇▇▇▇▇▇▇ ▇▇▇▇ | |||
| By: G. ▇▇▇▇▇▇▇▇ ▇▇▇▇ | |||
| Its: Treasurer | |||
47
SIGNATURE
PAGE
TO
IN
WITNESS WHEREOF, the
undersigned has executed this Agreement on the day and year first above
written.
| WARRANTHOLDER: | |||
| INTERNATIONAL CAPITAL PARTNERS LLC | |||
| /s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ | |||
| By: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ | |||
| Its: Managing Member | |||
48
SIGNATURE
PAGE
TO
SECURITIES
PURCHASE AGREEMENT
IN
WITNESS WHEREOF, the
undersigned has executed this Agreement on the day and year first above
written.
| WARRANTHOLDER: | |||
| /s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ | |||
| ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ |
49
SIGNATURE
PAGE
TO
SECURITIES
PURCHASE AGREEMENT
IN
WITNESS WHEREOF, the
undersigned has executed this Agreement on the day and year first above
written.
| WARRANTHOLDER: | |||
| /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ | |||
| ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ |
50
SIGNATURE
PAGE
TO
SECURITIES
PURCHASE AGREEMENT
IN
WITNESS WHEREOF, the
undersigned has executed this Agreement on the day and year first above
written.
| WARRANTHOLDER: | |||
| WOODLAKEN LLC | |||
| /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ | |||
| By: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ | |||
| Its: A Manager |
51
SIGNATURE
PAGE
TO
SECURITIES
PURCHASE AGREEMENT
IN
WITNESS WHEREOF, the
undersigned has executed this Agreement on the day and year first above
written.
| WARRANTHOLDER: | |||
| BRIL CORPORATION PROFIT SHARING PLAN | |||
| /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ | |||
| By: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ | |||
| Its: A Manager | |||
52
SIGNATURE
PAGE
TO
SECURITIES
PURCHASE AGREEMENT
IN
WITNESS WHEREOF, the
undersigned has executed this Agreement on the day and year first above
written.
| WARRANTHOLDER: | |||
| /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇ | |||
| ▇▇▇▇▇▇▇ ▇▇▇▇▇ |
53
SIGNATURE
PAGE
TO
SECURITIES
PURCHASE AGREEMENT
IN
WITNESS WHEREOF, the
undersigned has executed this Agreement on the day and year first above
written.
| WARRANTHOLDER: | |||
| /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇ | |||
| ▇▇▇▇ ▇▇▇▇▇▇▇▇ |
54
SIGNATURE
PAGE
TO
SECURITIES
PURCHASE AGREEMENT
IN
WITNESS WHEREOF, the
undersigned has executed this Agreement on the day and year first above
written.
| WARRANTHOLDER: | |||
| /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ | |||
| ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ |
55
SIGNATURE
PAGE
TO
SECURITIES
PURCHASE AGREEMENT
IN
WITNESS WHEREOF, the
undersigned has executed this Agreement on the day and year first above
written.
| WARRANTHOLDER: | |||
| ESTATE OF ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ | |||
| /s/ ▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ | |||
| By: ▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ | |||
| Its: Executrix | |||
56
SIGNATURE
PAGE
TO
SECURITIES
PURCHASE AGREEMENT
IN
WITNESS WHEREOF, the
undersigned has executed this Agreement on the day and year first above
written.
| WARRANTHOLDER: | |||
| ▇▇▇▇▇▇▇▇ LLC | |||
| /s/ ▇▇▇ ▇▇▇▇▇ | |||
| By: ▇▇▇ ▇▇▇▇▇ | |||
| Its: Manager, ▇▇▇▇▇▇▇▇ |
57
SIGNATURE
PAGE
TO
SECURITIES
PURCHASE AGREEMENT
IN
WITNESS WHEREOF, the
undersigned has executed this Agreement on the day and year first above
written.
| ▇▇▇ ▇▇▇▇▇▇: | |||
| /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇ | |||
| ▇▇▇▇▇▇▇ ▇▇▇▇▇ |
58
SIGNATURE
PAGE
TO
SECURITIES
PURCHASE AGREEMENT
IN
WITNESS WHEREOF, the
undersigned has executed this Agreement on the day and year first above
written.
| ▇▇▇ ▇▇▇▇▇▇: | |||
| /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ | |||
| ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ |
59
SIGNATURE
PAGE
TO
SECURITIES
PURCHASE AGREEMENT
IN
WITNESS WHEREOF, the
undersigned has executed this Agreement on the day and year first above
written.
| ▇▇▇ ▇▇▇▇▇▇: | |||
| /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇ | |||
| ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇ |
60
ANNEX
A
Sellers;
Allocation of Purchase Price
See
Attached