Exhibit 10.1
EXECUTION COPY
MEMBERSHIP INTEREST PURCHASE AGREEMENT
THIS MEMBERSHIP INTEREST PURCHASE AGREEMENT (this "Agreement") is made and
entered into as of the 1st day of August, 2008, by and among NovaStar Financial,
Inc., a Maryland corporation ("Buyer"), PipeFire, LLC, an Indiana limited
liability company (the "Company"), each Person that owns any Unit or Membership
Interest (as defined herein) in the Company, as set forth on Exhibit A (each, a
"Direct Owner"), and each Person named on Exhibit A as the Primary Beneficial
Owner of a Direct Owner (each, a "Primary Beneficial Owner"). As used in this
Agreement, the term "Seller" means a Direct Owner and its related Primary
Beneficial Owner, jointly and severally, and the term "Sellers" means all Direct
Owners and their respective Primary Beneficial Owners, collectively.
W I T N E S S E T H :
WHEREAS, the Company and the Subsidiaries (as defined herein) are engaged
in the business of providing appraisal management and related services to third
parties and related software development activities (collectively, the
"Business");
WHEREAS, the Sellers are the sole members of the Company, each holding the
Membership Interest in the Company as set forth on Exhibit A;
WHEREAS, the Sellers and the Company desire that the Sellers sell to Buyer,
and that Buyer purchase and acquire, 75% of the outstanding Units and Membership
Interests in the Company, on the terms and subject to the conditions set forth
in this Agreement;
WHEREAS, to give effect to the foregoing, the Parties desire to enter into
this Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and mutual
promises made in this Agreement and the representations, warranties and
covenants contained in this Agreement, and intending to be legally bound by this
Agreement, the Parties agree as follows:
ARTICLE 1
THE TRANSACTION
1.1 Purchase of Purchased Interest. Upon and pursuant to the terms and
conditions of this Agreement, Buyer hereby purchases from each of the Sellers,
and each of the Sellers hereby sells and transfers to Buyer, seventy-five
percent (75%) of such Seller's Units and Membership Interest in the Company
(collectively, the "Purchased Interest"), for the consideration specified below
in this Article 1. The Purchased Interest includes, without limitation,
seventy-five percent (75%) of the existing capital account maintained for each
Seller as of the date hereof, following allocation to the Sellers of all profits
and losses for all periods prior to and including the date hereof.
1.2 Payment of the Purchase Price. The aggregate purchase price (the
"Purchase Price") to be paid for the Purchased Interest will be equal to the sum
of the Initial Payment Amount and, if and when earned and subject to Section
5.4(b), the Second Payment Amount, the Third Payment Amount, and the Fourth
Payment Amount (together, the "Subsequent Payment Amounts"), which shall be
determined and paid as follows:
(a) Upon execution and delivery of this Agreement by each of the
Parties, Buyer is paying to Sellers, collectively, an initial aggregate purchase
price amount, in cash, of $750,000 (the "Initial Payment Amount"), and all
right, title and interest of Sellers in and to the Purchased Interest shall
transfer to Buyer upon payment of such amount in accordance with Section 1.3.
Immediately following
1
EXECUTION COPY
such payment and transfer, the Units and Membership Interest in the Company of
each Seller and the Buyer shall be as set forth on Exhibit B, and Buyer shall
thereupon be admitted as a Member of the Company, without further action by any
Person.
(b) Within thirty (30) days after such time as the Company's monthly
Pre-Tax Income for three (3) calendar months (each commencing after the date
hereof) within a four (4) consecutive calendar month period is $0.01 or more,
Buyer shall pay Sellers, collectively, an additional aggregate purchase price
amount, in cash, of $350,000 (the "Second Payment Amount"), subject to Buyer's
rights under Section 5.4(b).
(c) Within thirty (30) days after such time as the Company's monthly
Pre-Tax Income for three (3) calendar months (each commencing after the date
hereof) within a four (4) consecutive calendar month period is $200,000 or more,
Buyer shall pay Sellers, collectively, an additional aggregate purchase price
amount, in cash, of $650,000 (the "Third Payment Amount"), subject to Buyer's
rights under Section 5.4(b).
(d) Within thirty (30) days after such time as the Company's monthly
Pre-Tax Income for three (3) calendar months (each commencing after the date
hereof) within a four (4) consecutive calendar month period is $400,000 or more,
Buyer shall pay Sellers, collectively, an additional aggregate purchase price
amount, in cash, of $2,250,000 (the "Fourth Payment Amount"), subject to Buyer's
rights under Section 5.4(b).
(e) Buyer and Sellers agree that each shall file, in accordance with
Section 1060 of the Code, an Asset Allocation Statement on Form 8594 consistent
with the allocation set forth on Exhibit C hereto with their federal income Tax
Return for each Tax year that includes the date hereof and any date on which any
Subsequent Payment Amount is paid. Such allocation does not represent an
indication of the actual or relative amount of, and shall not be deemed to be
probative with respect to, any loss or damages that may be sustained by the
Company, Buyer or any Seller as a result of the breach of any provision of this
Agreement or of any other agreement executed in connection herewith, including
but not limited to the provisions of Section 4.4 of this Agreement.
1.3 Manner of Payment. The Initial Payment Amount and, when payable, the
Subsequent Payment Amounts (subject to Section 5.4(b)) shall be paid by Buyer,
by check, to each Seller in the amounts specified in Exhibit D, subject in the
case of Subsequent Payments to Buyer's rights under Section 5.4(b).
1.4 Capital Accounts and Taxes. Upon payment of the Initial Payment Amount,
Buyer shall succeed to seventy-five percent (75%) of the existing capital
account maintained for each Seller as of the date hereof, following allocation
to the Sellers of all profits and losses for all periods prior to and including
the date hereof. Sellers shall remain solely responsible for the payment of all
Taxes for all taxable income allocated to such Seller's capital account under
the Company's operating agreement for all periods prior to and including the
date hereof.
1.5 754 Election. The Parties hereby agree that the Company shall make an
election under Section 754 of the Code with respect to the transaction
contemplated hereby.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
OF THE SELLERS AND THE COMPANY
The Company and each Seller hereby represent and warrant to Buyer as
follows:
2
EXECUTION COPY
2.1 Organization, Qualification and Power. The Company is a limited
liability company duly organized, validly existing under the laws of the State
of Indiana. The Company has full power and authority to carry on the Business as
currently conducted and to own and use its assets as currently used, except that
the Company has not qualified to do business as a foreign limited liability
company in any jurisdiction. The Company is not in default under or in violation
of any provision of its articles of organization or operating agreement or any
resolution adopted by the managers of the Company.
2.2 Capitalization. All of the issued and outstanding Units and Membership
Interests of the Company are duly authorized, validly issued, fully paid and
nonassessable, and are held of record and owned beneficially by the Direct
Owners free and clear of any Taxes or Liens. The Units and relative percentage
Membership Interests of each of the Direct Owners are as set forth on Exhibit A.
Each Direct Owner is an Affiliate of the Person named on Exhibit A as the
Primary Beneficial Owner of such Direct Owner. There are no outstanding or
authorized options, warrants, purchase rights, subscription rights, conversion
rights, exchange rights or other agreements or commitments that could result in
the issuance or sale of, or otherwise cause to become outstanding, any
additional Units, Membership Interests, or other ownership, equity or capital
interests of the Company.
2.3 Ownership. All of the issued and outstanding Units and Membership
Interests of the Company that are held of record by a Direct Owner are owned
beneficially by such Direct Owner free and clear of any Taxes or Liens, other
than rights and obligations under the operating agreement of the Company and
this Agreement. There are no outstanding agreements or commitments that could
require the sale of any of such Units or Membership Interests of the Company.
There are no voting trusts, proxies or other agreements or arrangements with
respect to the voting of such Units or Membership Interests of the Company.
2.4 Subsidiaries.
(a) Schedule 2.4 sets forth the name and headquarters address of each
entity in which the Company directly or indirectly, through one or more other
entities, owns an equity interest (each, a "Subsidiary"), and the jurisdiction
in which each such Subsidiary is organized. Each Subsidiary is a duly organized
and validly existing entity under the laws of the jurisdiction of its
organization. Each Subsidiary has all requisite power and authority to own,
lease and operate its properties and carry on its business as now conducted,
except that no Subsidiary has qualified to do business as a foreign limited
liability company in any jurisdiction.
(b) All of the issued and outstanding equity interests of each
Subsidiary are duly authorized, validly issued, fully paid and nonassessable,
and are held of record and owned beneficially by the Company (or another
wholly-owned Subsidiary of the Company), free and clear of any Taxes or Liens.
There are no outstanding or authorized options, warrants, purchase rights,
subscription rights, conversion rights, exchange rights or other agreements or
commitments that could result in the issuance or sale of, or otherwise cause to
become outstanding, any additional ownership, equity or capital interests of any
Subsidiary.
(c) The Company does not own any equity interest in, or otherwise have
any investment in, any entity, joint venture or association, other than the
Subsidiaries.
2.5 Authority and Enforceability. The Company and each Seller has full
capacity to execute, deliver and perform its or his obligations under this
Agreement. The execution, delivery and performance of this Agreement by the
Company and by each Direct Owner have been duly authorized by all necessary
limited liability company or corporate action. This Agreement has been duly
executed and delivered by the Company and each Seller and constitutes the valid
and legally binding obligation of the
3
EXECUTION COPY
Company and each Seller, enforceable in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, moratorium and similar laws of general
application relating to or affecting creditors' rights and to general equity
principles.
2.6 Noncontravention. Neither the Company nor any Seller is required to
give any notice to, make any filing with or obtain any authorization, consent or
approval of any Governmental Authority or Person in order to execute and deliver
this Agreement or to perform such its or his obligations hereunder. Neither the
execution and delivery of this Agreement by the Company or any Seller nor the
consummation of the transactions contemplated by this Agreement will: (a)
violate any Law to which the Company, any Subsidiary or any Seller is subject;
(b) violate any provision of the articles of organization or operating agreement
or other constituent documents of the Company or any Subsidiary; or (c) conflict
with, result in a breach of, constitute a default under, result in the
acceleration of, give any Person the right to accelerate, terminate, modify or
cancel, or require any notice under, any agreement, license, permit,
authorization, instrument or other arrangement to which the Company, any
Subsidiary or any Seller is a party or by which the Company, any Subsidiary or
any Seller is bound.
2.7 Financial Statements. The books of account and related records of the
Company correctly, accurately and completely reflect all of assets and
Liabilities of the Company and the Subsidiaries on a consolidated basis, except
for such additional assets and Liabilities as are disclosed in Schedule 2.9 or
any other Schedule to this Agreement. Attached as Schedule 2.7 are the unaudited
balance sheet and unaudited statement of income of the Company and the
Subsidiaries as of and for the fiscal year ended December 31, 2007 and the
unaudited balance sheet and statement of income of the Company and the
Subsidiaries as of and for the six months ended June 30, 2008 (each a "Financial
Statement" and collectively the "Financial Statements"). Each Financial
Statement: (x) has been prepared based on, and in accordance with, the books of
account and related records of the Company, and (y) correctly, accurately and
completely presents the financial condition, financial position, results of
operations, assets and Liabilities of the Company and the Subsidiaries for the
periods covered.
2.8 Absence of Changes. Except as disclosed on Schedule 2.8, since June 30,
2008, the Company has not made any distributions or other payments to Sellers in
respect of their Membership Interests and has not made any other payments to any
Seller or any Affiliate of a Seller other than in the ordinary course of
business consistent with past practice. Since December 31, 2007, the Business
has been operated in the ordinary course consistent with past practice, and
there has been no event or occurrence which has caused or could reasonably be
expected to cause a Material Adverse Effect. Since December 31, 2007, except as
disclosed in Schedule 2.8, there has not been:
(a) any sale, lease, transfer, assignment or other disposition by the
Company or any Subsidiary of any of its assets or properties other than for fair
consideration in the ordinary course of business consistent with past practice,
or any disposition or loss of use by the Company or any Subsidiary of any
Intellectual Property;
(b) any agreement, lease, license or other arrangement (or series of
related agreements, leases, licenses or other arrangements) entered into by the
Company or any Subsidiary other than in the ordinary course of business
consistent with past practice;
(c) any acceleration, termination, modification or cancellation by any
Person (including the Company or any Subsidiary) of any agreement, lease,
license or other arrangement to which the Company or any Subsidiary is a party;
4
EXECUTION COPY
(d) any note, bond or other debt security issued or any indebtedness
for borrowed money or capitalized lease obligation created, incurred, assumed or
guaranteed by the Company or any Subsidiary, other than guarantees by the
Company of obligations of one or more of the Subsidiaries;
(e) any cancellation, compromise, waiver or release of any right or
claim by the Company or any Subsidiary;
(f) any increase in the compensation of, or any payment of bonus
compensation to, any of the members, officers or employees of the Company or of
any Subsidiary; any adoption of, amendment or modification to or termination of
any Employee Benefit Plan or other plan, agreement, commitment or arrangement
for the benefit of any of the directors, officers or employees of the Company or
of any Subsidiary; or any other change by the Company or any Subsidiary in the
employment terms for any of their respective directors, officers or employees;
(g) any change by the Company or any Subsidiary in its accounting
methods, principles or practices;
(h) any tax election by the Company or any Subsidiary outside the
ordinary course of business or inconsistent with past practice; or
(i) any occurrence, event, incident, action, failure to take action or
transaction involving the Company or any Subsidiary that has had or is
reasonably likely to have a Material Adverse Effect.
2.9 Undisclosed Liabilities. Except as set forth on Schedule 2.9, neither
the Company nor any Subsidiary has any Liability, except for: (a) Liabilities
set forth in the June 30, 2008 balance sheet included in the Financial
Statements; and (b) Liabilities incurred since June 30, 2008 in the ordinary
course of business consistent in nature with those reflected in the Financial
Statements.
2.10 Claims. There are no actions, suits, proceedings, hearings,
investigations, charges, complaints, claims or demands of any kind pending or,
to the Knowledge of the Sellers, threatened against or affecting the Company or
any Subsidiary and, to the Knowledge of Sellers, there is no reasonable basis
for any of the foregoing. There are no actions, suits, proceedings, hearings,
investigations, charges, complaints, claims or demands of any kind pending or,
to the Knowledge of the Sellers, threatened against or affecting any Seller that
would be reasonably likely to affect the Company, any Subsidiary or any aspect
of the Business, and, to the Knowledge of Sellers, there is no reasonable basis
for any of the foregoing.
2.11 Legal Compliance. Except for failure by the Company and each
Subsidiary to qualify to do business as a foreign limited liability company in
any jurisdiction, and except as disclosed on Schedule 2.11: (a) the Company and
each Subsidiary has complied and is currently in compliance with each applicable
Law; and (b) the Company and each Subsidiary has obtained all franchises,
approvals, permits, licenses, orders, registrations, certificates, variances or
similar rights required to conduct the Business or maintain its assets, and such
franchises, approvals, permits, licenses, orders, registrations, certificates,
variances or similar rights are current and have not been revoked, suspended,
canceled or terminated, nor has notice been given of any threatened revocation,
suspension, cancellation, termination or non-renewal.
2.12 Title to Assets. The Company or a Subsidiary has good and marketable
title to the assets identified as the Company's or such Subsidiary's assets in
the Financial Statements, free and clear of all Liens. The Company or a
Subsidiary has a valid leasehold interest in, or license or other contractual
right to use, all other assets used by the Company or such Subsidiary in the
conduct of the Business.
5
EXECUTION COPY
2.13 Real Property. Neither the Company nor any Subsidiary currently owns,
and none of them has ever owned, any real property. Schedule 2.13 lists each
lease of real property to which the Company or any Subsidiary is a party or by
which any of them is bound. Correct and complete copies of such leases, as
amended to date, have been provided to Buyer. Each such lease is valid, binding,
enforceable and in full force and effect, and neither the Company nor any
Subsidiary nor, to the Knowledge of Sellers, any other party, is in default of
any material obligation under any such lease.
2.14 Intellectual Property. The Company or a Subsidiary owns all right,
title and interest in and to (free and clear of all Liens), or has the right to
use pursuant to a valid and enforceable license, sublicense, agreement or
permission, all Intellectual Property used in or necessary to the operation of
the Business. Neither the Company nor any Subsidiary has interfered with,
infringed upon, misappropriated, or otherwise violated any Intellectual Property
rights of any other Person, and neither the Company nor any Subsidiary has ever
received any charge, complaint, claim, demand or notice alleging any such
interference, infringement, misappropriation or violation. To the Knowledge of
Sellers, no other Person has interfered with, infringed upon, misappropriated or
otherwise conflicted with any Intellectual Property rights of the Company or of
any Subsidiary.
2.15 Contracts.
(a) Neither the Company nor any Subsidiary is a party to or bound by
any agreement that purports to restrict the freedom of the Company or any
Subsidiary to engage in any line of business or to compete with any person.
(b) The Company has delivered to Buyer a correct and complete copy of
each written Material Contract, as amended to date, and a written summary
setting forth the terms and conditions of each oral Material Contract. With
respect to each Material Contract: (i) the Material Contract is legal, valid,
binding and enforceable and in full force and effect; (ii) the Material Contract
will continue to be legal, valid, binding, enforceable and in full force and
effect on identical terms following the consummation of the transactions
contemplated by this Agreement; (iii) no party is in breach or default, and no
event has occurred which with notice or lapse of time would constitute a breach
or default, or permit termination, modification or acceleration, under the
Material Contract; and (iv) no Person has repudiated any provision of the
Material Contract. As used herein, the term "Material Contract" means:
(i) any agreement (or group of related agreements) for the
purchase, sale, lease or license of goods or services that is reasonably likely
to involve payments to or by the Company or any Subsidiary in excess of
$10,000.00;
(ii) any agreement concerning a partnership, joint venture or
other business arrangement with any Person;
(iii) any agreement (or group of related agreements) under which
(A) any indebtedness for borrowed money or capitalized lease obligation has been
created, incurred, assumed or guaranteed, or (B) any Lien has been granted or
imposed on any assets or properties of the Company or of any Subsidiary;
(iv) any license, sublicense, agreement or permission pursuant to
which an item of Intellectual Property is used;
(v) any agreement under which a default (whether by the Company,
a Subsidiary, or any third party) would reasonably be expected to have a
Material Adverse Effect; and
6
EXECUTION COPY
(vi) any agreement for the provision of goods or services by the
Company or any Subsidiary outside the ordinary course of business.
2.16 Employment Matters.
(a) Set forth on Schedule 2.16(a) is a complete and accurate list of
the following information for each employee of the Company or of any Subsidiary,
including each employee on leave of absence or layoff status: name, job title,
date of hire (or if different, date of commencement of employment), current
compensation paid or payable and any change in compensation during the last 12
months.
(b) All employees of the Company or of any Subsidiary are employed on
an at-will basis and, except as set forth on Schedule 2.16(b), neither the
Company nor any Subsidiary is a party to or bound by any agreement with any
person relating to employment, including but not limited to any agreement
specifying a length of employment, base or bonus compensation, severance
benefits, or other terms of employment.
(c) Neither the Company nor any Subsidiary has any outstanding
obligations to any former employee.
(d) The execution, delivery and performance of this Agreement will not
trigger any severance, bonus or other payment obligations to any employee of the
Company or of any Subsidiary under any contract, Employee Benefit Plan, or
otherwise, except for payment of the Purchase Price hereunder to employees who
are also Sellers.
(e) Neither the Company nor any Subsidiary is a party to or bound by
any collective bargaining agreement, and none of them have experienced any
strikes, grievances, claims of unfair labor practices or other collective
bargaining disputes. Neither the Company nor any Subsidiary has committed any
unfair labor practice. There are no complaints against the Company or any
Subsidiary pending or threatened before the National Labor Relations Board, any
similar state, or local labor agencies, or before the Equal Employment
Commission or any similar state or local agency, by or on behalf of any employee
or former employee of the Company or of any Subsidiary.
(f) Except as disclosed on Schedule 2.16(f), the Company, each
Subsidiary, and PipeFire Management LLC has complied with all Laws relating to
employment.
2.17 Employee Benefits.
(a) Set forth on Schedule 2.17 is a true and complete list of each
retirement, pension, profit sharing, deferred compensation, stock purchase,
stock option, incentive, bonus, severance, retirement, health, welfare, fringe
benefit, or other plan, contract, commitment or arrangement for the benefit of
the current or former directors, officers or employees of the Company, any
Subsidiary, or PipeFire Management LLC, or any of their respective dependents,
survivors or beneficiaries, that is sponsored, maintained or contributed to by
the Company, any Subsidiary, or PipeFire Management LLC, or with respect to
which the Company, any Subsidiary, or PipeFire Management LLC could incur
Liability under ERISA or the Code (each, an "Employee Benefit Plan"). Each
Employee Benefit Plan complies in form and in operation in all material respects
with the applicable requirements of any Law, including ERISA, Consolidated
Omnibus Budget Reconciliation Act of 1985, as amended, and the Code. No payment
pursuant to any Employee Benefit Plan that is owed or may become due to any
officer, director or agent of the Company or any employee will be non-deductible
to the Company or subject to any Taxes under Sections 280G or 4999 of the Code.
7
EXECUTION COPY
(b) The Company has delivered to Buyer correct, accurate and complete
copies of: (i) all documents evidencing each of the Employee Benefit Plans, as
amended, including the plan document and summary plan description (or correct,
accurate and complete written summaries of the Employee Benefit Plans to the
extent not evidenced by such documents); (ii) all documents evidencing trusts
relating to the Employee Benefit Plans, as amended; (iii) all documents
evidencing any agreements or arrangements with service providers relating to the
Employee Benefit Plans (or correct, accurate and complete written summaries of
such service provider agreements or arrangements); (iv) where applicable, the
last filed Form 5500 or 5500 C with respect to each the Employee Benefit Plan;
(v) if applicable, the audit report of each the Employee Benefit Plan; and (vi)
all schedules and exhibits to all such documents listed in subsections (i)-(v).
All Forms 5500 or 5500 C required to be filed for any Employee Benefit Plan have
been timely filed.
(c) Each Employee Benefit Plan that is intended to qualify under
Sections 401(a) or 501(a) of the Code has received a favorable determination
letter or, if applicable, is relying on a favorable determination letter or
similar letter received by the prototype plan sponsor, and the related trusts
have been determined to be exempt from taxation. Nothing has occurred since the
date of such determination letter that would cause the loss of such
qualification or exemption, and no assessment of any Taxes has been made or, to
the Knowledge of the Sellers, is threatened against the Company, any Subsidiary,
PipeFire Management LLC or any related trust of any Employee Benefit Plan on the
basis of a failure of such qualification or exemption. The consummation of the
transactions contemplated by this Agreement shall not result in the payment,
vesting or acceleration of any benefit under any Employee Benefit Plan.
(d) No Employee Benefit Plan is subject to Title IV of ERISA or a
"multiemployer plan" within the meaning set forth in Section 3(37) of ERISA.
(e) No Employee Benefit Plan that is an "employee welfare benefit
plan" within the meaning set forth in Section 3(1) of ERISA provides or promises
post retirement health or life benefits to current employees or retirees of the
Company or of any Subsidiary beyond their retirement date or other termination
of service, except as required by applicable Law.
(f) All contributions and premiums which are due under the terms of or
in respect of each Employee Benefit Plan have been made or paid by the due date
thereof.
(g) With respect to the Employee Benefit Plans, no event has occurred,
and there exists no condition or set of circumstances, in connection with which
the Company, any Subsidiary, or PipeFire Management LLC could be subject to any
Liability (other than for routine claims for benefits in the ordinary course)
under the terms of the Employee Benefit Plans, ERISA, the Code or any other
applicable Law. To the Knowledge of the Sellers, none of the Employee Benefit
Plans are under investigation or audit by the Internal Revenue Service or the
U.S. Department of Labor. No legal action, suit or claim is pending or, to the
Knowledge of the Sellers, threatened, with respect to any Employee Benefit Plan
(other than routine claims for benefits in the ordinary course) and no fact
exists which could reasonably be expected to give rise to any such action, suit
or claim.
(h) No "prohibited transaction," as such term is defined in Section
406 of ERISA or Section 4975 of the Code, has occurred with respect to any
Employee Benefit Plan.
2.18 Insurance.
(a) The Company has delivered to Buyer accurate and complete copies of
all policies of insurance, including insurance providing benefits for employees
(and correspondence relating to coverage thereunder), providing coverage to the
Company or any Subsidiary. All policies of insurance
8
EXECUTION COPY
that provide coverage to the Company or any Subsidiary: (i) are valid,
outstanding and enforceable, and no party thereto is in default, breach or
violation of any obligations or conditions thereunder; (ii) are issued by an
insurer that is financially sound; and (iii) taken together, provide insurance
coverage in scope and amount customary and reasonable for the Business.
(b) Neither the Company nor any Subsidiary has received (i) any
refusal of coverage or any notice that a defense will be afforded with
reservation of rights, or (ii) any notice of cancellation or non-renewal any
other indication that any policy of insurance is no longer in full force or
effect or that the issuer of any policy of insurance is not willing or able to
perform its obligations thereunder.
2.19 Taxes.
(a) The Company and each Subsidiary has: (i) timely and duly filed all
Tax returns that the Company or such Subsidiary is required to file (the "Tax
Returns"), each of which was accurate and complete in all material respects;
(ii) timely paid all Taxes that have become due and payable, except such as are
being contested in good faith by appropriate proceedings (to the extent that any
such proceedings are required) and with respect to which the Company is
maintaining reserves or accruals in its Financial Statements in an amount equal
to the Taxes being contested; (iii) withheld or collected all Taxes that the
Company or such Subsidiary was required to withhold or collect, and to the
extent required, paid such Taxes to the proper Governmental Authority; and (iv)
maintained accruals and reserves in its Financial Statements which are in all
respects adequate to cover all Liabilities of the Company and any Subsidiary for
Taxes.
(b) No claim has been made by Governmental Authority in a jurisdiction
where the Company does not file Tax Returns that the Company or any Subsidiary
is or may be subject to taxation in that jurisdiction. The failure prior to the
date hereof by the Company or any Subsidiary to qualify to do business as a
foreign limited liability company in any jurisdiction will not give rise to any
liability for Taxes for any period prior to the date hereof.
(c) No extension of time has been requested or granted with respect to
the filing of any Tax Returns. No Tax Return has ever been audited by
Governmental Authority and there are no pending or, to the Knowledge of the
Sellers, threatened, actions, suits, proceedings, disputes, investigations,
audits, charges, claims or demands of any kind relating to Taxes or any Tax
Returns of the Company or of any Subsidiary. Neither the Company nor any
Subsidiary has granted or been requested to grant any waiver of any statute of
limitations with respect to, or any extension of a period for the assessment of,
any Tax.
(d) There is no tax sharing agreement, tax allocation agreement, tax
indemnity obligation or similar written or unwritten agreement, arrangement,
understanding or practice with respect to Taxes to which the Company or any
Subsidiary is a party of by which any of them is bound.
2.20 Related Party Transactions. Except as set forth on Schedule 2.20, no
Seller, nor any Affiliate of a Seller, nor any employee, director, officer, or
other representative of the Company or of any Subsidiary, nor any family member
of any of the foregoing, nor any entity in which any of the foregoing has a
financial interest (other than passive investments in publicly traded
securities): (a) is a party to any agreement or other form of transaction or
arrangement with the Company or any Subsidiary (other than the Company's
operating agreement, and other than employment arrangements that are otherwise
disclosed under this Agreement), including, but not limited to, any loan or any
lease or license of any property or assets; (b) has an interest in any property
or assets used by or in connection with any aspect of
9
EXECUTION COPY
the Business; or (c) is engaged in competition with the Company or any
Subsidiary with respect to any of the products or services of the Company or of
any Subsidiary in any market.
2.21 Other Interests. Except as set forth on Schedule 2.21, no Seller nor
any Affiliate of a Seller is an employee, manager, director, officer, or other
representative of, or holds a financial interest (other than passive investments
in publicly traded securities) in, any Person engaged in any business related to
the arranging, brokering, funding, closing, refinancing, or buying and selling
of residential or commercial real estate or residential or commercial real
estate loans, including but not limited to any real estate agency or brokerage,
mortgage broker or lender, title insurer, real estate appraisal company, closing
services provider, or manager of any of the foregoing. The foregoing does not
apply to investments by a Seller or an Affiliate of a Seller in real estate, or
in Persons that invest in real estate, in each case for such Seller's (or its
Affiliate's) own account.
2.22 Brokers. No finder, broker, agent, or other intermediary acting on
behalf of the Company or any Subsidiary or Seller or Affiliate of a Seller is
entitled to a commission, fee, or other compensation in connection with the
negotiation or consummation of this Agreement or any of the transactions
contemplated hereby.
2.23 Full Disclosure. No representation, warranty, covenant or agreement
made by the Company or the Sellers in this Agreement or in the exhibits or
schedules hereto contains any false or misleading statement of a material fact,
or omits any material fact required to be stated therein or necessary in order
to make the statements therein not false or misleading.
2.24 No Other Representations or Warranties. In entering into this
Agreement, each of the parties acknowledges that except for the representations
and warranties made by the parties in this Agreement and in the exhibits and
schedules hereto, no party nor any of their respective directors, officers,
employees, agents or representatives, makes or has made any representation or
warranty, either express or implied to any other party or to any of their
respective Affiliates, directors, officers, employees, agents or
representatives.
2.25 Cross Disclosure. If Sellers or Company make disclosure under a
Schedule to this Agreement, the parties shall deem that disclosure made in each
instance where it would be required under this Article 2, to the extent that the
relevance of such disclosure to such other instances is reasonably apparent from
such disclosure.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to the Company and the Sellers as
follows:
3.1 Organization and Good Standing. Buyer is a corporation duly formed,
validly existing and in good standing under the laws of the State of Maryland.
3.2 Authority and Enforceability. Buyer has full power and authority to
execute, deliver and perform this Agreement, and the execution, delivery and
performance of this Agreement by Buyer has been duly authorized by all necessary
corporate action. This Agreement has been duly executed and delivered by Buyer
and constitutes the valid and legally binding obligation of Buyer, enforceable
in accordance with its terms. Buyer is not required to give any notice to, make
any filing with or obtain any authorization, consent or approval of any
Governmental Authority or Person in order for the parties to consummate the
transactions contemplated by this Agreement.
10
EXECUTION COPY
3.3 Noncontravention. Neither the execution or delivery of this Agreement,
nor the consummation of the transactions contemplated by this Agreement, will:
(a) violate any Law to which Buyer is subject; (b) violate any provision of the
certificate of incorporation or bylaws of Buyer or any resolution adopted by the
board of directors or shareholders of Buyer; or (c) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, give any
Person the right to accelerate, terminate, modify or cancel, or require any
notice under, any material agreement, license, permit, authorization, instrument
or other arrangement to which Buyer is a party or by which Buyer is bound or to
which its assets are subject (or result in the imposition of any Lien upon any
of its assets).
3.4 Brokers. No finder, broker, agent, or other intermediary acting on
behalf of Buyer is entitled to a commission, fee, or other compensation in
connection with the negotiation or consummation of this Agreement or any of the
transactions contemplated hereby.
3.5 Investment; Securities Laws.
(a) Buyer represents that Buyer is acquiring the Purchased Interest
for its own account, not as nominee or agent for any other Person and not with a
view to the resale or distribution of any part thereof within the meaning of the
Securities Act or any applicable blue sky or state securities law, and Buyer has
no present intention of selling or granting any participation in or otherwise
distributing all or a portion of the same, except as expressly provided in the
Amended Operating Agreement.
(b) Buyer represents that it understands that the Purchased Interest
has not been and will not be registered under the Securities Act or under any
applicable blue sky or state securities laws, and that the Purchased Interest
must be held indefinitely unless the Purchased Interest is subsequently
registered under the Securities Act and all applicable blue sky or state
securities laws or an exemption from such registration is available.
ARTICLE 4
ADDITIONAL AGREEMENTS
4.1 Amendment of Constituent Documents. Effective upon the execution and
delivery of this Agreement by each Party:
(a) The Company's Articles of Organization are hereby amended and
restated in their entirety in the form attached hereto as Exhibit E (the
"Amended Articles"), and the Company shall execute the Amended Articles, file
such Amended Articles with the Secretary of State of the State of Indiana, and
otherwise take all actions necessary to give effect thereto.
(b) The Company's operating agreement is hereby amended and restated
in its entirety in the form attached hereto as Exhibit F (the "Amended Operating
Agreement"), and the Company, each Seller and Buyer shall execute and deliver
the same and otherwise take all actions necessary to give effect thereto.
4.2 Additional Agreements. Effective upon the execution and delivery of
this Agreement by each Party, the Company is entering into an employment
agreement with each Primary Beneficial Owner and with ▇▇▇▇▇ ▇▇▇▇▇▇, in the form
attached hereto as Exhibits G-1 through G-8, and Buyer and the Company are
entering into a Revolving Credit Agreement in the form attached hereto as
Exhibit H and an Administrative Services Agreement in the form attached hereto
as Exhibit I. Buyer, the Company and each Seller, in all capacities (including
as Members of the Company) hereby authorize and approve the execution, delivery
and performance by the Company of each of the foregoing.
11
EXECUTION COPY
4.3 Intellectual Property Transfers. Each Seller hereby irrevocably sells,
grants, conveys, assigns and delivers unto the Company, its successors and
assigns, all of such Seller's right, title and interest (if any), throughout the
world, in and to the Inventions, all prior and derivative works relating to the
Inventions, all actions and causes of action relating to the Inventions, and all
profits, damages, penalties and other recoveries related to any of the
foregoing. As used herein, the term "Inventions" means any and all inventions,
technological innovations, modifications, discoveries, designs, developments,
improvements, processes, programs, formulas, data, techniques, methods,
know-how, ideas, creations, secrets and any other intellectual property rights
whatsoever including any and all interests (whether or not patentable or
registrable under copyright or similar statutes or subject to analogous
protection) and improvements to all such properties that such Seller (either
alone or with others) has made, conceived, discovered, created, developed,
invented, produced, reduced to practice or possesses that, in case of any of the
foregoing, relate to or are used in connection with the Business or any of the
products or services being developed, provided or sold by the Company or any
Subsidiary. Each Seller covenants that, when requested, such Seller will,
without charge to the Company, its successors and assigns, but without
out-of-pocket expense of such Seller, execute all documents and take all such
further actions as may be reasonably necessary, desirable or convenient to
enable the Company and its successors and assigns to obtain, maintain and
enforce, in any and all countries, its intellectual property rights and
interests in the matters herein assigned to the Company.
4.4 Noncompetition and Nonsolicitation.
(a) In partial consideration of Buyer's payment of the Purchase Price
to Sellers and the consummation of the transactions contemplated by this
Agreement, and without in any way limiting any other agreement between any
Person and the Company or any of its Affiliates, each Seller hereby agrees,
subject to Section 4.4(b) hereof, that such Seller shall not, for a period of
five (5) years after the date of this Agreement, directly or indirectly (other
than through and for the benefit of the Company and its Subsidiaries):
(i) engage, anywhere in the United States, in the Business (other
than passive investments in publicly traded securities) individually or through
any Person; provided, however, that the foregoing shall not prohibit any Seller,
other than the Majority Seller, from performing (but not procuring,
coordinating, or otherwise managing) appraisals as a licensed appraiser;
(ii) solicit, for any Seller or any other Person, business from
any customers, clients or accounts of the Company or of any Subsidiary, or
encourage, in any way or for any reason, any customer, client or account of the
Business, to sever or alter the relationship of such customer, client or account
with the Business; or
(iii) solicit, employ, retain as a consultant, interfere with or
attempt to entice away from the Company or any Subsidiary any employee of the
Company or of any Subsidiary, during such employment and for a period of six (6)
months thereafter.
(b) Notwithstanding the foregoing, the parties agree that the
restrictions set forth in clauses (i) and (ii) of Section 4.4(a) shall cease to
be applicable to a Seller, other than the Majority Seller, upon the later to
occur of: (i) the termination of such Seller's employment with the Company and
its Subsidiaries and of any right to severance compensation from the Company or
any of its Subsidiaries, and (ii) the date on which the Company acquires such
Seller's entire equity interest in the Company or such Seller otherwise disposes
of such Seller's entire equity interest in the Company pursuant to a transaction
permitted by the Amended Operating Agreement; provided, however, that if such
Seller's employment with the Company is terminated either by the Company for
"cause" or by such Seller without "good reason" (as such terms are defined in
the employment agreement between the Company and such Seller),
12
EXECUTION COPY
the restrictions set forth in clauses (i) and (ii) of Section 4.4(a) shall not
cease to be applicable to such Seller prior to the first anniversary of the date
of such termination of employment.
(c) The Parties acknowledge and agree that the provisions of this
Section 4.4 are an essential part of the agreed upon exchange of consideration,
and that the geographic boundaries, scope of prohibited activities, and the time
duration of the provisions of this Section 4.4 are reasonable and are no broader
than are necessary to protect the legitimate business interests of Buyer. In
furtherance of, and not in derogation of the provisions of this Section 4.4, if
any provision contained in this Section 4.4 is held by any court or arbitrator
of competent jurisdiction to be unenforceable because of the duration of such
provision, the geographic area covered thereby or otherwise, the court or
arbitrator making such determination shall have the power to, and is hereby
directed by the Parties to, reduce the duration or geographic area of such
provision or otherwise modify such provision, and, in its reduced or modified
form, such provision shall be enforceable. If any provision of this Section 4.4
should be held invalid, illegal or unenforceable in any respect in any
jurisdiction, then, to the fullest extent permitted by law, (i) all other
provisions of this Section 4.4 shall remain in full force and effect in such
jurisdiction and shall be construed in order to carry out the intentions of the
Parties as nearly as may be possible, and (ii) such invalidity, illegality or
unenforceability shall not affect the validity, legality or enforceability of
such provision in any other jurisdiction.
4.5 Further Assurances. In case at any time after the date hereof any
further action is necessary or desirable to carry out the purposes of this
Agreement, each of the Parties shall take such further action (including the
execution and delivery of such further instruments and documents) as any other
Party reasonably may request, all at the sole cost and expense of the requesting
Party (unless the requesting Party is entitled to indemnification therefor under
Article 5).
ARTICLE 5
INDEMNIFICATION
5.1 Indemnification Obligations.
(a) The Company and the Sellers shall jointly and severally indemnify
Buyer and hold Buyer harmless from and against any and all Adverse Consequences
arising out of or resulting from (A) any misrepresentation or breach of any
representation, warranty, covenant or agreement made by the Company or any
Sellers in this Agreement or in any statement, certificate, instrument or other
document or item furnished or delivered or to be furnished or delivered by the
Company or any Seller to Buyer in connection with the transactions contemplated
by this Agreement, and (B) any failure by the Company, any Subsidiary or
PipeFire Management LLC to maintain workers compensation insurance in accordance
with applicable law. Notwithstanding the foregoing: (i) Buyer shall not be
entitled to indemnification under this Section (other than with respect to a
breach of Section 4.4) unless the aggregate monetary amount of all Adverse
Consequences for which Buyer would, in the absence of this sentence, be entitled
to receive indemnification under this Section exceeds an amount equal to $10,000
(the "Threshold"), and then Buyer shall be entitled to indemnification for only
such amounts that, in the aggregate, exceed the Threshold; and (ii) the
aggregate indemnification obligations of Sellers collectively under this Article
5 (other than with respect to a breach of Section 4.4) shall not exceed
one-hundred percent (100%) of the Purchase Price.
(b) Buyer shall indemnify the Company and each Seller and hold the
Company and each Seller harmless from and against any and all Adverse
Consequences arising out of or resulting from any misrepresentation or breach of
any representation, warranty, covenant or agreement made by Buyer in this
Agreement or in any statement, certificate, instrument or other document or item
furnished or delivered or to be furnished or delivered by Buyer to the Company
or any Seller in connection with the
13
EXECUTION COPY
transactions contemplated by this Agreement. Notwithstanding the foregoing,
except with respect to a failure to pay any Subsequent Payment Amount: (i) the
Company and Sellers shall not be entitled to indemnification under this Section
unless the aggregate monetary amount of all Adverse Consequences for which the
Company and Sellers would, in the absence of this sentence, be entitled to
receive indemnification under this Section exceeds the Threshold, and then the
Company and Sellers shall be entitled to indemnification for only such amounts
that, in the aggregate, exceed the Threshold; and (ii) the aggregate
indemnification obligations of Buyer under this Article 5 shall not exceed
one-hundred percent (100%) of the Purchase Price.
5.2 Limitation on Liability of Individual Sellers; Security Interest.
(a) Any liability of a Direct Owner and its related Primary Beneficial
Owner shall be joint and several. Any liability of the Sellers under this
Article 5 shall otherwise be several but not joint, and shall be apportioned to
the Sellers on a pro rata basis according to their respective Membership
Interests immediately prior to the transactions contemplated by this Agreement,
as set forth in Exhibit C; provided, however, that the Majority Seller shall be
jointly and severally liable for all liabilities of the Company and the Sellers
hereunder.
(b) Each Seller hereby pledges and grants to Buyer a first priority
perfected security interest in the Units and Membership Interests of such Seller
and all distributions thereon and proceeds thereof, to secure the obligations of
such Seller hereunder. Without limiting any other rights, in the event that any
Seller fails to pay to Buyer, when due, the amount of any Claim hereunder that
such Seller is obligated to pay to Buyer, the Company hereby agrees to pay to
Buyer, any and all distributions that otherwise would be made with respect to
such Units and Membership Interests to such Seller, and to otherwise comply with
written instructions of Buyer without further consent of any Person, until such
liability to Buyer is satisfied in full. Each Seller and the Company shall take
such actions and deliver such further instruments and documents as Buyer may
from time to time request to perfect and otherwise give effect to the security
interest granted hereby.
5.3 Indemnification Procedures.
(a) All representations and warranties contained in this Agreement or
any statement, certificate, instrument or other document or item delivered or to
be delivered pursuant to this Agreement or in connection with the transactions
contemplated by this Agreement shall survive the consummation of the
transactions contemplated by this Agreement.
(b) A Party seeking indemnification pursuant to this Article 5 (an
"Indemnified Party") shall give notice to the Party from whom such
indemnification is sought (the "Indemnifying Party") of any claim for which it
is seeking indemnity under this Article 5 (a "Claim"), but failure to give such
notice shall not relieve the Indemnifying Party of any Liability hereunder
(except to the extent that the Indemnifying Party has suffered actual prejudice
thereby).
(c) An Indemnifying Party will have the right to defend the
Indemnified Party against any third party Claim with counsel of its choice
reasonably satisfactory to the Indemnified Party so long as (i) the Indemnifying
Party notifies the Indemnified Party, in writing, that the Indemnifying Party
will defend the Indemnified Party against the Claim, (ii) the Claim involves
only monetary damages and does not seek an injunction or other equitable relief,
(iii) the Indemnifying Party confirms in writing that such Claim is subject to
indemnification by the Indemnifying Party hereunder, and provides to the
Indemnified Party reasonable assurances that the Indemnifying Party has the
financial ability to satisfy the Claim, and (iv) the Indemnifying Party conducts
the defense of the Claim in a diligent manner.
14
EXECUTION COPY
(d) So long as the Indemnifying Party is conducting the defense of the
Claim in accordance with Section 6.2(c), (i) the Indemnified Party may retain
separate co-counsel at its sole cost and expense and participate in the defense
of the Claim, (ii) the Indemnified Party will not consent to the entry of any
judgment or enter into any settlement with respect to the Claim without the
prior written consent of the Indemnifying Party (which consent shall not be
withheld or delayed unreasonably), and (iii) the Indemnifying Party will not
consent to the entry of any judgment or enter into any settlement with respect
to the Claim without the prior written consent of the Indemnified Party (which
consent shall not be withheld or delayed unreasonably).
(e) In the event any of the conditions set forth in Section 6.2(c) is
or becomes unsatisfied, (i) the Indemnified Party may defend against, and
consent to the entry of any judgment or enter into any settlement with respect
to the Claim (and the Indemnified Party need not consult with, or obtain any
consent from, the Indemnifying Party), (ii) the Indemnifying Party will
reimburse the Indemnified Party promptly and periodically for the costs of
defending against the Claim (including reasonable attorneys' fees and expenses),
and (iii) the Indemnifying Party will remain responsible for any Adverse
Consequences the Indemnified Party may suffer resulting from or arising out of
the Claim.
(f) For purposes of this Article 5, including the determination of
Claims by any Indemnified Party, any and all references to a "Material Adverse
Effect" or "material" limitations or limitations as to "Knowledge", while being
taken into account for purposes of determining whether a Claim for Adverse
Consequences exists, shall be disregarded for purposes of calculating the amount
of said Claim. For purposes of calculating the monetary amount of Adverse
Consequences for which any Claim may be made, a credit will be given to the
extent of any insurance recovery, recovery from any other party alleged to be
responsible therefor, or Tax benefit received by the Indemnified Party, in
respect of such Adverse Consequences. Each Indemnified Party shall use its best
efforts to collect any amounts available under such insurance coverage and from
such other party alleged to have responsibility and to realize any Tax benefit
with respect to any Adverse Consequences. If the amount to be netted hereunder
from any payment required under Sections 5.1(a) or 5.1(b) is received after
payment by the Indemnifying Party of any amount otherwise required to be paid to
an Indemnified Party pursuant to this Article 5, the Indemnified Party shall
repay to the Indemnifying Party, promptly after receipt, any amount that the
Indemnifying Party would not have had to pay pursuant to this Article 5 had such
determination been made at the time of such payment.
(g) Each Indemnified Party shall be obligated to use its commercially
reasonable efforts to mitigate the monetary amount of any Adverse Consequences
for which it is entitled to seek indemnification hereunder, and an indemnifying
party shall not be required to make any payment to an Indemnified Party in
respect of such Adverse Consequences to the extent that such payment would have
been avoided had such Indemnified Party not failed to comply with the foregoing
obligation.
(h) The indemnities provided for in Sections 5.1(a) and 5.1(b) hereof
shall be the exclusive remedies of the parties to this Agreement and their
respective officers, directors, employees, Affiliates, agents, consultants,
representatives, successors and assigns for any breach of or inaccuracy in any
representation or warranty or any breach, non-fulfillment or default in the
performance of any of the covenants or agreements contained in this Agreement,
and the parties shall not be entitled to a rescission of this Agreement or to
any further indemnification rights or claims of any nature whatsoever in respect
thereof, all of which the parties hereto hereby waive; provided, however, that
the limitations of this Section shall not apply in the case of fraud or to any
breach, non-fulfillment or default in the performance of any of the covenants or
agreements contained in Article 4 of this Agreement; provided, further, that
nothing herein shall limit the rights of any party to seek specific performance
or injunctive or other non-monetary equitable relief.
15
EXECUTION COPY
(i) Any liability for indemnification under this Article 5 shall be
determined without duplication of recovery by reason of the state of facts
giving rise to such liability constituting a breach of more than one
representation, warranty, covenant or agreement.
(j) Upon making any indemnification payment pursuant to this Article
5, the Indemnifying Party will, to the extent of such payment, be subrogated to
all rights of the Indemnified Party against any unaffiliated third party in
respect of the Adverse Consequences to which the payment relates; provided,
however, that until the Indemnified Party recovers full payment of its Adverse
Consequences, any and all claims of the Indemnifying Party against any such
unaffiliated third party on account of said payment are hereby made expressly
subordinated and subjected in right of payment to the Indemnified Party's rights
against such third party. Without limiting the generality of any other provision
hereof, each such Indemnified Party and Indemnifying Party will duly execute
upon request all instruments reasonably necessary to evidence and perfect the
above-described subrogation and subordination rights.
(k) Notwithstanding anything herein to the contrary, the
representations and warranties under this Agreement shall survive until the date
that is eighteen (18) months following the date of this Agreement, and no action
or claim for Adverse Consequences resulting from any misrepresentation or breach
of warranty shall be brought or made thereafter; provided, however, that (i) any
of the representations and warranties contained in Sections 2.2, 2.3, 2.4, 2.5,
2.19, 2.20, 2.22, 3.1, 3.2 and 3.4 shall survive indefinitely; and (ii) any
claims which has been properly asserted pursuant to Section 5.1 prior to the
expiration of the survival period, shall survive until such claim is finally
resolved and satisfied. The covenants contained in this Agreement shall survive
the Closing indefinitely.
5.4 Determination and Payment of Claims.
(a) After the giving of any Claim Notice pursuant hereto, the amount
of any Claim for which an Indemnified Party shall be entitled to indemnification
under this Article 5 shall be determined: (i) by the written agreement between
the Indemnified Party and the Indemnifying Party; (ii) by a judgment or decree
of any court of competent jurisdiction; or (iii) by any other means to which the
Indemnified Party and the Indemnifying Party shall agree. All amounts due to the
Indemnified Party as so finally determined shall be paid within five (5) days
after such final determination.
(b) All payments made by Seller to any Indemnified Party pursuant to
Section 9.1(b) shall be treated as an adjustment to the Purchase Price. The
aggregate amount of any and all Claims payable to Buyer may be recouped and
set-off by Buyer against any Subsequent Payment Amount hereunder, without
limiting any other rights or remedies of Buyer. In the event that the amount of
any Claim made by Buyer prior to the date on which any Subsequent Payment Amount
would otherwise be due and payable remains unresolved on such date, Buyer shall
be entitled to withhold from such Subsequent Payment Amount an amount equal to
the aggregate amount of all such unresolved Claims, and to recoup and set-off
against such withheld amounts the full amount of such Claims as finally
determined pursuant to Section 5.4(a), without interest. In the event that the
aggregate amount of all such Claims are finally determined pursuant to Section
5.4(a) to be less than the amount of the Subsequent Payment Amounts so withheld
by Buyer, Buyer shall pay the difference to Sellers within five (5) Business
Days after such final determination.
ARTICLE 6
MISCELLANEOUS
6.1 Publicity. From the date of this Agreement, neither Buyer, on the one
hand, nor the Company or any Seller, on the other hand, shall, without the
written approval of the other, make any press
16
EXECUTION COPY
release or other public announcement concerning the transactions contemplated by
this Agreement, except as and to the extent that any such Party shall be so
obligated by applicable Law, in which case such Party shall allow the other
Parties reasonable time to comment on such release or announcement and the
Parties shall use their reasonable efforts to cause a mutually agreeable release
or announcement to be issued; provided, however, that the foregoing shall not
preclude communications or disclosures necessary to implement the provisions of
this Agreement or to comply with any Law or any rules and regulations of the
Securities and Exchange Commission.
6.2 Expenses. Except as otherwise provided herein, each Party will pay
all costs and expenses incident to its negotiation and preparation of this
Agreement and to its performance and compliance with all agreements and
conditions contained herein on its part to be performed or complied with,
including the fees, expenses and disbursements of its counsel, accountants,
advisors and consultants.
6.3 Notices. All notices or other communications required or permitted
hereunder shall be in writing and shall be deemed given or delivered (a) when
delivered personally, against written receipt, (b) if sent by registered or
certified mail, return receipt requested postage prepaid, when received, (c)
when delivered by a nationally recognized overnight courier service, prepaid, or
(d) when received by facsimile transmission, if confirmed by the other means
described in clauses (a), (b), or (c), and shall be addressed as follows:
If to the Company, to:
PipeFire, LLC
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to any Seller, to the address for such Seller, and to the attention
of such Seller's Primary Beneficial Owner, as set forth on Exhibit A.
If to Buyer, to:
NovaStar Financial, Inc.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: W. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Husch ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
6.4 Entire Agreement. This Agreement, including the initial paragraph and
the recitals to this Agreement and all Schedules and Exhibits attached to this
Agreement, each of which are made a part of this Agreement by this reference,
constitutes the entire understanding of the Parties, and supersedes any prior
agreements or understandings, written or oral, between the Parties with respect
to the subject
17
EXECUTION COPY
matter of this Agreement. No supplement, modification or amendment of this
Agreement shall be binding unless executed in writing by all of the Parties. No
waiver of any of the provisions of this Agreement shall be deemed, or shall
constitute, a waiver of any other provision, whether or not similar, nor shall
any waiver constitute a continuing waiver. No waiver shall be binding unless
executed in writing by the Party making the waiver.
6.5 Limitation on Third Party Benefit. Except as otherwise expressly
provided in this Agreement with respect to Affiliates of a Party, nothing in
this Agreement is intended or shall be construed to confer upon any Person other
than the Parties hereto any right, remedy or claim under or by reason of this
Agreement.
6.6 Succession and Assignment. This Agreement shall be binding upon, and
inure to the benefit of, the Parties and their representatives, successors and
permitted assigns. None of the Parties may assign either this Agreement or any
of the rights, interests or obligations hereunder without the prior written
approval of the other Parties; provided, however, that Buyer may assign any or
all of its rights and interests under this Agreement to one or more of its
Affiliates, provided that no such assignment shall relieve Buyer from any
obligations or liabilities under this Agreement.
6.7 Governing Law. This Agreement and any disputes hereunder shall be
governed by and construed in accordance with the laws of the State of Indiana
without giving effect to any choice or conflict of law provision or rule
(whether of the State of Indiana or any other jurisdiction) that would cause the
application of laws of any jurisdiction other than those of the State of
Indiana. Each Party hereby consents to the jurisdiction of the federal and state
courts of the State of Indiana and of the federal and state courts of the State
of Missouri for purposes of any action that may be brought to enforce any
provision of this Agreement, which jurisdiction shall be exclusive as to the
federal and state courts of any State other than Indiana and Missouri.
6.8 Counterparts; Exchange by Electronic Transmission. This Agreement may
be executed in two or more counterparts, each of which shall be deemed an
original, but which together shall constitute one and the same instrument. The
Parties may execute this Agreement and all other agreements, and other documents
contemplated by this Agreement and exchange counterparts of such documents by
means of facsimile transmission or electronic mail and the Parties agree that
the receipt of such executed counterparts shall be binding on such Parties and
shall be construed as originals.
6.9 Specific Performance. Each of the Parties acknowledges and agrees that
the other Parties would be damaged irreparably in the event that any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the Parties agrees that
any other Party shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any action instituted in any
court of the United States or any other state thereof having jurisdiction over
the parties in the matter, in addition to any other remedy (including monetary
damages) to which it may be entitled, at law or in equity.
ARTICLE 7
DEFINITIONS
7.1 Certain Definitions. As used in this Agreement, the following terms
shall have the respective meanings ascribed to them in this Section:
18
EXECUTION COPY
(a) "Adverse Consequences" means all actions, suits, proceedings,
hearings, investigations, charges, claims, injunctions, judgments, orders,
decrees, damages, losses, penalties, costs, amounts paid in settlement and fees,
including court costs and reasonable attorneys' fees and expenses.
(b) "Affiliate" of any Person means any Person, directly or indirectly
controlling, controlled by or under common control with such Person or related
by blood, marriage or adoption to such Person.
(c) "Amended Articles" has the meaning specified in Section 4.1(a).
(d) "Amended Operating Agreement" has the meaning specified in Section
4.1(b).
(e) "Business" has the meaning specified in the recitals to this
Agreement.
(f) "Claim" has the meaning specified in Section 5.3(b).
(g) "Code" means the Internal Revenue Code of 1986, as amended.
(h) "Company" has the meaning specified in the initial paragraph of
this Agreement.
(i) "Direct Owner" has the meaning specified in the initial paragraph
of this Agreement.
(j) "Employee Benefit Plan" has the meaning specified in Section
2.17(a).
(k) "ERISA" means the employee Retirement Income Security Act of 1974,
as amended.
(l) "Financial Statements" or "Financial Statement" has the meaning
specified in Section 2.7.
(m) "GAAP" means United States generally accepted accounting
principles consistently applied as in effect from time to time.
(n) "Governmental Authority" means any U.S. federal, state, local or
foreign court or governmental or regulatory agency or authority.
(o) "Indemnified Party" has the meaning specified in Section 5.3(b).
(p) "Indemnifying Party" has the meaning specified in Section 5.3(b).
(q) "Initial Payment Amount" has the meaning specified in Section
1.2(a).
(r) "Intellectual Property" means with regard to a Person all
intellectual property of that Person including (i) means all inventions (whether
patentable or unpatentable and whether or not reduced to practice), all
improvements thereto, and all patents, patent applications and patent
disclosures, together with all reissuances, continuations, continuations in
part, revisions, extensions and reexaminations thereof, and statutory invention
registrations; (ii) all trademarks, service marks, trade dress, logos, slogans,
trade names and corporate names and rights in telephone numbers, together with
all abbreviations, translations, adaptations, derivations and combinations
thereof and including all goodwill associated therewith, and all applications
and registrations and renewals in connection therewith; (iii) all copyrightable
works of authorship, all copyright protection therein and all applications,
registrations and
19
EXECUTION COPY
renewals in connection therewith; (iv) all rights in internet web sites and
internet domain names; (v) all mask works and all applications, registrations
and renewals in connection therewith; (vi) all confidential or proprietary
information, including research and development, know how, trade secrets,
formulas, compositions, manufacturing and production processes and techniques,
technical data, designs, drawings, specifications, customer and supplier lists,
pricing and cost information and business and marketing plans and proposals;
(vii) all rights in telephone numbers; (viii) all other property rights created
through intellectual or discovery efforts; and (ix) all copies and tangible
embodiments of any or all of the above (in whatever form or medium).
(s) "Knowledge of the Sellers" means the actual knowledge of any
Seller, in each case after reasonable investigation, which shall include review
of each such Person's own records and inquiry of those employees who have
primary responsibility for the specific matter at issue.
(t) "Law" means any federal, state, local, municipal, foreign,
international, multinational or other constitution, statute, treaty, code,
ordinance, principle of common law or other law (including any rule, regulation,
plan, injunction, judgment, order, decree, ruling or charge thereunder or
related thereto).
(u) "Liability" means any liability of any kind, character or
description (whether known or unknown, whether asserted or unasserted, whether
absolute or contingent, whether accrued or unaccrued, whether disputed or
undisputed, whether secured or unsecured, whether joint or several, whether
vested or unvested, whether liquidated or unliquidated, whether due or to become
due, or whether executory, determined, determinable, or otherwise).
(v) "Lien" means any charge, claim, equitable interest, community or
other marital property interest, security interest, conditional sale agreement,
mortgage, indenture, deed of trust, security agreement, pledge, hypothecation,
option, restriction, encroachment, easement, servitude, right of first refusal,
condition or other lien, encumbrance or defect of title of any kind or nature.
(w) "Majority Seller" means A.R. Ebeyer Diversified Investments LLC
and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, jointly and severally.
(x) "Material Adverse Effect" means any effect or change that would be
materially adverse to the business, operations, conditions (financial or
otherwise), operating results, prospects or earnings of the Company or any
Subsidiary, the Business, or any of assets of the Company or of any Subsidiary.
(y) "Material Contract" has the meaning specified in Section 2.15(b).
(z) "Membership Interest" means the entire interest of a Person in the
Company, including, without limitation, such Person's right to vote as a member,
Units, and right to receive profits, losses, distributions or any other economic
benefits from the Company.
(aa) "Net Income" means, for each applicable calendar month, the net
income (or loss) of Company for such month, in accordance with GAAP; provided,
however, that there shall be excluded from Net Income: (i) any aggregate net
gain or loss during such period arising from the sale or other disposition of
capital assets; (ii) any losses resulting from any write-down of any assets that
is not required by GAAP; and (iii) any net income or gain or loss from
extraordinary items other than discontinued operations.
20
EXECUTION COPY
(bb) "Party" or "Parties" means Buyer, the Company, or any of the
Sellers, individually or collectively, as applicable.
(cc) "Person" means an individual, a corporation, a partnership, a
limited liability company or partnership, an association, Governmental
Authority, a trust or other entity or organization.
(dd) "Pre-Tax Income" means, for each applicable calendar month, the
sum of Net Income for such month plus, to the extent deducted in the
determination of Net Income for such month, (i) the amount of all income taxes
and amortization of goodwill, plus (ii) the amount of any distributions made in
respect of Membership Interests in the Company, plus (iii) the amount of any
fees, salaries, wages, bonuses or other compensation paid to employees,
representatives, agents or consultants of the Company or of any Affiliate of the
Company, except in the ordinary course of business. For purposes of the
foregoing, the amount of compensation paid at market-based or cost-based rates
for services rendered shall be deemed to be an amount in the ordinary course of
business. In addition, for purposes of determining Net Income and Pre-Tax Income
for any calendar month, any expenses paid at a time inconsistent with the
Company's contractual obligations and previously existing payment practices, if
any, with respect thereto shall not be deemed to have been paid at such time
and, instead, shall be deemed to have been paid at the time that such payment
would have been made under such contractual obligations and existing payment
practices.
(ee) "Primary Beneficial Owner" has the meaning specified in the
initial paragraph of this Agreement.
(ff) "Purchase Price" has the meaning specified in Section 1.2.
(gg) "Purchased Interest" has the meaning specified in Section 1.1.
(hh) "Second Payment Amount" has the meaning specified in Section
1.2(b).
(ii) "Securities Act" means the Securities Act of 1933, as amended,
and all rules and regulations promulgated thereunder.
(jj) "Seller" or "Sellers" has the meaning specified in the initial
paragraph of this Agreement.
(kk) "Subsequent Payment Amounts" has the meaning specified in Section
1.2.
(ll) "Subsidiary" has the meaning specified in Section 2.4.
(mm) "Tax Returns" has the meaning specified in Section 2.19(a).
(nn) "Taxes" means all federal, state, local or foreign income, gross
receipts, license, employment, payroll, withholding, Social Security (or
similar), unemployment, severance, premium, disability, excise, value-added,
accumulated earnings, windfall profit, net worth, alternative or add-on minimum,
estimated, sales, use, transfer, registration, real property, stamp,
environmental (including taxes under Code ss.59A), personal property, use and
occupancy, business and occupation, maritime, mercantile, tariff, custom, duty,
capital stock, franchise, gift or estate and all other taxes, fees, assessments,
levies, tariffs, charges or duties of any kind, character, nature or
description, including any interest, penalties or additions thereto.
(oo) "Third Payment Amount" has the meaning specified in Section
1.2(c).
21
EXECUTION COPY
(pp) "Unit" means the right of any Person to vote on matters submitted
to the members of the Company at a meeting of the Company or by written consent.
7.2 Legal Counsel. Majority Seller engaged ▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP to represent
Majority Seller in connection with the preparation of this Agreement and the
documents related hereto, the employment agreement between Majority Seller and
the Company, and the Company's amendments to its operating agreement
(collectively, the "Related Agreements"). ▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP was not, and has
not been engaged, to provide legal counsel to any person other than the Majority
Seller. Each Primary Beneficial Owner and Direct Owner hereby: (a) approves
▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP's representation of Majority Seller in the preparation of
the Related Agreements; (b) acknowledges that no legal counsel has been engaged
by Majority Seller to protect or otherwise represent the interests of the other
Primary Beneficial Owners or Direct Owners, that ▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP has not
been engaged by any party other than the Majority Seller and that actual or
potential conflicts of interest may exist among the Majority Seller and the
other Primary Beneficial Owners and Direct Owners in connection with the
preparation of the Related Agreements (with the consequence that the other
Primary Beneficial Owners' and Direct Owners' interests may not be vigorously
represented unless each such other Primary Beneficial Owner and Direct Owner
engages his, her or its own legal counsel, respectively); and (c) acknowledges
further that he, she or it has been afforded the opportunity to engage and seek
the advice of his, her or its own legal counsel before entering into the Related
Agreements.
7.3 Rules of Construction. All references to any Law shall be deemed to
include any amendments thereto, and any successor Law, unless the context
otherwise requires. "Including" means "including without limitation" and does
not limit the preceding words or terms. The word "or" is used in the inclusive
sense of "and/or". The singular shall include the plural and vice versa. Each
word of gender shall include each other word of gender as the context may
require. References to "Articles" or "Sections" or "Schedules" or "Exhibits"
shall mean Articles or Sections of this Agreement or Schedules or Exhibits
attached to this Agreement, unless otherwise expressly indicated. The title of
each Article and the headings or titles preceding the text of the Sections are
inserted solely for convenience of reference, and shall not constitute a part of
this Agreement. The Parties have each participated in the negotiation and
drafting of this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the Parties and no presumption or burden of proof shall arise favoring or
disfavoring any Party by virtue of the authorship of any of the provisions of
this Agreement.
[Remainder of page intentionally left blank; signature page follows.]
22
EXECUTION COPY
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
BUYER: NOVASTAR FINANCIAL, INC.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
-------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Chief Financial
Officer
COMPANY: PIPEFIRE, LLC
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, President and CEO
SELLERS: A. R. EBEYER DIVERSIFIED
INVESTMENTS LLC
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------------
Title: President
-----------------------------------
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-----------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇ ▇ ▇▇▇▇▇, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
------------------------------------
Title: President
-----------------------------------
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-----------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇
EXECUTION COPY
BARK INVESTMENTS, INC.
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇
--------------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇
------------------------------------
Title: President
-----------------------------------
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
-----------------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇
M & A PROFESSIONAL SERVICES, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
------------------------------------
Title: President
-----------------------------------
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-----------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
CACTUS GRAPHICS, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
--------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
------------------------------------
Title: CEO
-----------------------------------
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-----------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇▇▇▇ & ASSOCIATES, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇
------------------------------------
Title: President
-----------------------------------
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
-----------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇▇▇ DIVERSIFIED INVESTMENTS, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------------
Title: President
-----------------------------------
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-----------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇