CONTRIBUTION AGREEMENT

Exhibit 2.1

CONTRIBUTION AGREEMENT

among

DIAMETRICS MEDICAL, INC.

(“Public Company”)

and

The Members of Vanguard Synfuels, LLC

(collectively, “Members”)

Dated as of September 20, 2006

TABLE OF CONTENTS

 

 

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CONTRIBUTION AGREEMENT

THIS CONTRIBUTION AGREEMENT is made as of September 20, 2006, by and among Diametrics Medical, Inc., a Minnesota corporation (“ Public Company ”), and the members of Vanguard Synfuels, LLC a Louisiana limited liability company (each a “ Member ” and collectively, the “ Members ”). Certain capitalized terms used herein are defined in Article I .

W I T N E S S E T H:

WHEREAS, the Members, other than Darrell Dubroc (“ Dubroc ”) and Tim Collins, (“ Collins ”) wish to contribute all of their Membership Interests to Public Company in exchange for cash and Dubroc and Collins wish to contribute all of their Membership Interests to Public Company in exchange for shares of Series K Convertible Preferred Stock of Public Company (“ Series K Preferred Stock ”);

WHEREAS, simultaneously with the consummation of the transactions contemplated by this Agreement, Public Company will consummate the sale of 2,850 shares of its Series J Convertible Preferred Stock pursuant to Subscription Agreements between Public Company and the investors party thereto; and

WHEREAS, Dubroc and Collins desire that the contribution of their Membership Interests together with the sale of the Company’s Series J Preferred Stock pursuant to the Securities Purchase Agreement qualify as a tax-free exchange under Section 351 of the Code.

NOW, THEREFORE, in consideration of the foregoing and the mutual covenants, agreements and warranties herein contained, the parties agree as follows:

ARTICLE I

DEFINITIONS

1.1 Definitions . The following terms shall have the following meanings for the purposes of this Agreement:

“ Affiliate ” shall mean, with respect to any specified Person, (i) any other Person which, directly or indirectly, owns or controls, is under common ownership or control with, or is owned or controlled by, such specified Person, (ii) any other Person which is a director, officer or partner or member or is, directly or indirectly, the beneficial owner of ten percent or more of any class of equity securities, of the specified Person or a Person described in clause (i) of this paragraph, (iii) another Person of which the specified Person is a director, officer, or partner or member or is, directly or indirectly, the beneficial owner of ten percent or more of any class of equity securities, (iv) another Person in which the specified Person has a substantial beneficial interest or as to which the specified Person serves as trustee or in a similar capacity, or (v) any relative or spouse of the specified Person or any of the foregoing Persons, any relative of such spouse or any spouse of any such relative; provided that at any time after the Closing Date, the Company and the Subsidiary on the one hand and Member and its Affiliates (other than the Company and the Subsidiary) shall not be deemed to be Affiliates of each other.

“ Agreement ” shall mean this Contribution Agreement, including all exhibits and schedules hereto, as it may be amended from time to time in accordance with its terms.

“ Benefit Plans ” shall have the meaning provided in Section 3.14 .

“ Business Day ” shall mean any day of the year other than (i) any Saturday or Sunday or (ii) any other day on which banks located in New York, New York generally are closed for business.

“ Cash Amount ” shall have the meaning provided in Section 2.2 .

“ Closing ” shall mean the consummation of the transactions contemplated herein in accordance with Article X .

“ Closing Balance Sheet ” shall mean a consolidated balance sheet of the Company and the Subsidiary (including any notes thereto) as at the close of business on a date not more than three Business Days prior to the Closing Date, prepared in accordance with GAAP consistently applied.

“ Closing Date ” shall mean the date on which the Closing occurs or is to occur.

“ Closing Shares ” shall have the meaning provided in Section 2.2 .

“ Code ” shall mean the United States Internal Revenue Code of 1986, as amended.

“ Collins ” shall have the meaning set form in the Recitals .

“ Collins Employment Agreement ” shall mean the Employment Agreement between Public Company and Collins, substantially in the form of Exhibit A .

“ Company ” shall mean Vanguard Synfuels, LLC, a Louisiana limited liability company.

“ Contract ” shall mean any contract, lease, commitment, understanding, sales order, purchase order, agreement, indenture, mortgage, note, bond, right, warrant, instrument, plan, permit or license, whether written or verbal, which is intended or purports to be binding and enforceable.

“ Dubroc ” shall have the meaning set form in the Recitals .

“ Dubroc Employment Agreement ” shall mean the Employment Agreement between Public Company and Dubroc, substantially in the form of Exhibit B .

“ Ending Date ” shall have the meaning provided in Section 6.8(a) .

“ Environmental Law ” shall mean any Law which relates to or otherwise imposes liability or standards of conduct concerning discharges, emissions, releases or threatened releases of noises, odors or any pollutants, contaminants or hazardous or toxic wastes, substances or materials, whether as matter or energy, into ambient air, water, or land, or otherwise relating to the manufacture, processing, generation, distribution, use, treatment, storage, disposal, cleanup,

 

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transport or handling of pollutants, contaminants, or hazardous or toxic wastes, substances or materials, including the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, the Superfund Amendments and Reauthorization Act of 1986, as amended, the Resource Conservation and Recovery Act of 1976, as amended, the Toxic Substances Control Act of 1976, as amended, the Federal Water Pollution Control Act Amendments of 1972, the Clean Water Act of 1977, as amended, any so-called “Superfund” or “Superlien” Law (including those already referenced in this definition) and any other Law of any Governmental Authority having a similar subject matter.

“ Environmental Permit ” shall mean any permit, license, approval, consent or other authorization required by or pursuant to any applicable Environmental Law.

“ Environmental Warranty ” shall mean a representation or warranty in Section 3.19 .

“ ERISA ” shall mean the Employee Retirement Income Security Act of 1974, as amended.

“ ERISA Affiliate ” shall mean, with respect to any Person, each corporation, trade or business that is, along with such Person, part of the same controlled group of corporations, trades or businesses under common control within the meaning of sections 414(b) or (c) of the Code.

“ Escrow ” shall mean the escrow under the Escrow Agreement.

“ Escrow Agent ” shall mean the bank or trust company selected by Public Company to hold the Escrow.

“ Escrow Agreement ” shall mean the Escrow Agreement among the Members, Public Company and Escrow Agent substantially in the form attached hereto as Exhibit C .

“ Escrow Amount ” shall have the meaning provided in Section 2.2 .

“ Escrow Shares ” shall have the meaning provided in Section 2.2 .

“ Exchange Act ” shall mean the Exchange Act of 1934, as amended.

“ Executives ” shall have the meaning provided in Section 6.8(a) .

“ Financial Statements ” shall mean all of the following:

(a) The audited consolidated financial statements of the Company as of December 31, 2004, and December 31, 2005 (including all notes thereto), which are set forth on Schedule 1.1(a) , consisting of the consolidated balance sheets at such dates and the related consolidated statements of earnings and retained earnings and cash flows for the twelve-month periods then ended;

(b) The unaudited consolidated financial statements of the Company as of June 30, 2006, which are set forth on Schedule 1.1(b) , consisting of the consolidated balance sheets at such dates and the related consolidated statements of earnings and retained earnings and cash flows for the six-month periods then ended;

 

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(c) The Latest Balance Sheet, which is set forth on Schedule 1.1(c) .

“ First South ” shall mean First South Farm Credit, ACA.

“ GAAP ” shall mean U.S. generally accepted accounting principles at the time in effect.

“ Governmental Authority ” shall mean the government of the United States or any foreign country or any state or political subdivision thereof and any entity, body or authority exercising executive, legislative, judicial, regulatory or administrative functions of, or pertaining to, government.

“ Hazardous Substance ” shall mean any material or substance which (i) constitutes a hazardous substance, toxic substance or pollutant (as such terms are defined by or pursuant to any Environmental Law) or (ii) is regulated or controlled as a hazardous substance, toxic substance, pollutant or other regulated or controlled material, substance or matter pursuant to any Environmental Law.

“ Indemnified Person ” shall mean the Person or Persons entitled to, or claiming a right to, indemnification under Article XII .

“ Indemnifying Person ” shall mean the Person or Persons claimed by the Indemnified Person to be obligated to provide indemnification under Article XII .

“ Intellectual Property ” shall mean any and all trademarks, tradenames, service marks, patents, copyrights (including any registrations, applications, licenses or rights relating to any of the foregoing), technology, trade secrets, inventions, know-how, designs, computer programs, processes, formulas and all other intangible assets, properties and rights. The “ Company’s Intellectual Property ” shall mean any and all Intellectual Property used by the Company or any Subsidiary in the conduct of their businesses.

“ Knowledge of the Company ” means the actual knowledge of Collins, Dubroc, Johnny McDaniel or Penny Welch.

“ Latest Balance Sheet ” shall mean the unaudited consolidated balance sheet of the Company dated as of June 30, 2006, set forth on Schedule 1.1(c) .

“ Law ” shall mean any law, statute, regulation, ordinance, rule, order, decree, judgment, consent decree, settlement agreement or governmental requirement enacted, promulgated, entered into, agreed or imposed by any Governmental Authority.

“ Lien ” shall mean any mortgage, lien (except for any lien for taxes not yet due and payable), charge, restriction, pledge, security interest, option, lease or sublease, claim, right of any third party, easement, encroachment or encumbrance.

 

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“ Loss ” or “ Losses ” shall mean any and all liabilities, losses, costs, claims, damages (excluding consequential and punitive damages, other than any such damages that arise out of a third party claim), penalties and expenses (including attorneys’ fees and expenses and costs of investigation and litigation). In the event any of the foregoing are indemnifiable hereunder, the terms “Loss” and “Losses” shall include any and all attorneys’ fees and expenses and costs of investigation and litigation incurred by the Indemnified Person in enforcing such indemnity.

“ Material Adverse Change ” shall mean a change (or circumstance involving a prospective change) in (i) the business, operations, assets, liabilities, results of operations, cash flows, condition (financial or otherwise) or prospects of the Company or the Subsidiary which is materially adverse or (ii) the ability of a Member to perform its obligations under this Agreement or any of its Related Agreements or to consummate the transactions contemplated hereby or thereby on a timely basis, except that none of the following shall be deemed in themselves to constitute a Material Adverse Change (a) any changes in laws, rules or regulations of general applicability or interpretations thereof by Governmental Authorities that do not disproportionately affect the Company or the Subsidiary and (b) any changes in general economic conditions that do not disproportionately affect the Company or the Subsidiary.

“ Material Adverse Effect ” shall mean an effect (or circumstance involving a prospective effect) on (i) the business, operations, assets, liabilities, results of operations, cash flows, condition (financial or otherwise) or prospects of the Company or Subsidiary which is materially adverse or (ii) the ability of a Member to perform its obligations under this Agreement or any of its Related Agreements or to consummate the transactions contemplated hereby or thereby on a timely basis, except that none of the following shall be deemed in themselves to have a Material Adverse Effect (a) any changes in laws, rules or regulations of general applicability or interpretations thereof by Governmental Authorities that do not disproportionately affect the Company or the Subsidiary and (b) any changes in general economic conditions that do not disproportionately affect the Company or the Subsidiary.

“ Member Representative ” shall mean Dubroc.

“ Member Release ” shall mean the Cross-Receipt and Release executed by each Member in favor of Public Company substantially in the form of Exhibit D .

“ Members ” shall have the meaning provided in the Preamble .

“ Member’s Equity ” shall mean an amount equal to Total Assets less Total Liabilities.

“ Membership Interests ” shall mean 100% of the limited liability company membership interests of the Company.

“ Permits ” shall have the meaning provided in Section 3.12 .

“ Person ” shall mean any individual, corporation, proprietorship, firm, partnership, limited partnership, trust, association or other entity or any Governmental Authority.

“ Public Company ” shall have the meaning provided in the Preamble .

 

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“ Public Company Indemnified Parties ” shall mean Public Company, its Affiliates (including, after the Closing, the Company and the Subsidiary) M.A.G. Capital, LLC, and their respective officers, directors, members, managers, employees, agents, representatives, accountants and legal counsel, provided that in no event shall any Member be deemed a Public Company Indemnified Party.

“ Public Company SEC Filings ” means any forms, reports, schedules, statements, registration statements and other documents filed by Public Company or its subsidiaries pursuant to the federal securities laws and the SEC’s rules and regulations, including those filed after the date hereof.

“ Real Property ” shall have the meaning provided in Section 3.9(a) .

“ Related Agreement ” shall mean any Contract which is or is to be entered into at the Closing or otherwise pursuant to this Agreement. The Related Agreements executed by a specified Person shall be referred to as “such Person’s Related Agreements,” “its Related Agreements” or another similar expression.

“ Required Consents ” shall have the meaning provided in Section 8.1 .

“ SEC ” shall mean the United States Securities and Exchange Commission.

“ Securities Act ” shall mean the Securities Act of 1933, as amended.

“ Securities Warranty ” shall mean a representation or warranty in Section 3.28 .

“ Series K Preferred Stock ” shall have the meaning set form in the Recitals .

“ Subsidiary ” shall mean Vanguard Biofuels, Inc., a Louisiana corporation.

“ Tax Return ” shall mean any report, return or other information required to be supplied to a Governmental Authority in connection with any Taxes.

“ Tax Statute of Limitations Date ” shall mean the close of business on the 90th day after the expiration of the applicable statute of limitations with respect to Taxes, including any extensions thereof (or if such date is not a Business Day, the next Business Day).

“ Tax Warranty ” shall mean a representation or warranty in Section 3.17 .

“ Taxes ” shall mean all taxes, charges, fees, duties (including customs duties), levies or other assessments, including income, gross receipts, net proceeds, ad valorem, turnover, real and personal property (tangible and intangible), sales, use, franchise, excise, value added, stamp, leasing, lease, user, transfer, fuel, excess profits, occupational, interest equalization, windfall profits, severance, license, payroll, environmental, capital stock, disability, employee’s income withholding, other withholding, unemployment and Social Security taxes, which are imposed by any Governmental Authority, and such term shall include any interest, penalties or additions to tax attributable thereto.

 

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“ Territory ” shall mean the United States.

“ Title and Authorization Warranty ” shall mean a representation or warranty in Section   3.1 , 3.2 , 3.3 , 3.4 or 3.7 .

“ Total Assets ” shall mean the total of all of the assets of the Company shown on the Closing Balance Sheet.

“ Total Liabilities ” shall mean the total of all of the liabilities of the Company shown on the Closing Balance Sheet.

1.2 Interpretation . The headings preceding the text of Articles and Sections included in this Agreement and the headings to Schedules attached to this Agreement are for convenience only and shall not be deemed part of this Agreement or be given any effect in interpreting this Agreement. The use of the masculine, feminine or neuter gender or the singular or plural form of words herein shall not limit any provision of this Agreement. The use of the terms “including” or “include” shall in all cases herein mean “including, without limitation” or “include, without limitation,” respectively. Reference to any Person includes such Person’s successors and assigns to the extent such successors and assigns are permitted by the terms of any applicable agreement, and reference to a Person in a particular capacity excludes such Person in any other capacity or individually. Reference to any agreement (including this Agreement), document or instrument means such agreement, document or instrument as amended or modified and in effect from time to time in accordance with the terms thereof and, if applicable, the terms hereof. Reference to any Law means as amended, modified, codified, replaced or re-enacted, in whole or in part, and in effect on the date hereof, including rules, regulations, enforcement procedures and any interpretations promulgated thereunder. Underscored references to Articles, Sections, clauses, Exhibits or Schedules shall refer to those portions of this Agreement, and any underscored references to a clause shall, unless otherwise identified, refer to the appropriate clause within the same Section in which such reference occurs. The use of the terms “hereunder”, “hereof”, “hereto” and words of similar import shall refer to this Agreement as a whole and not to any particular Article, Section, or clause of or Exhibit or Schedule to this Agreement. Consummation of the transactions contemplated herein shall not be deemed a waiver of a breach of or inaccuracy in any representation, warranty or covenant or of any party’s rights and remedies with regard thereto. No specific representation, warranty or covenant contained herein shall limit the generality or applicability of a more general representation, warranty or covenant contained herein. A breach of or inaccuracy in any representation, warranty or covenant shall not be affected by the fact that any more general or less general representation, warranty or covenant was not also breached or inaccurate. The parties expressly disclaim the holding of, and any interpretative conclusions or determinations reached in, IBP, Inc. v. Tyson Foods, Inc. , No. CIV.A. 18373, 2001 Del. Ch. LEXIS 81 (Del. Ch. June 15, 2001), including any requirement that a Material Adverse Change of Material Adverse Effect be “durationally significant” or measured over a period of years rather than months.

 

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ARTICLE II

CONTRIBUTION OF MEMBERSHIP INTERESTS

2.1 Sale and Purchase . Subject to the terms and conditions of this Agreement, at the Closing the Members shall contribute, transfer and deliver to Public Company all of the Membership Interests, free and clear of all Liens, and Public Company shall accept, acquire and take delivery of all of the Membership Interests.

2.2 Payment of Exchange Consideration . On the Closing Date, in consideration for the contribution of the Membership Interests to Public Company and the agreement of Dubroc and Collins pursuant to Section 6.8 , Public Company shall (a) pay to the Members an aggregate amount equal to $17,699,378 less $1,769,938 (the “ Escrow Amount ”) (such net amount being referred to as the “ Cash Amount ”) and (b) deliver to Dubroc and Collins certificates representing an aggregate of 4,300 shares of Series K Preferred Stock (the “ Shares ”) less 430 shares of Series K Preferred Stock (the “ Escrow Shares ”) (such net amount being referred to as the “ Closing Shares ”). Public Company shall, concurrently therewith, deposit the Escrow Amount and the Escrow Shares into the Escrow. The Cash Amount shall be paid to the Members in the amounts set forth on Schedule 2.2(a) by means of a check or by wire transfer of immediately available funds to the bank accounts designated by the Members in written wire transfer instructions delivered to Public Company not less than two Business Day prior to the Closing Date. The Shares shall be delivered to Dubroc and Collins in the amounts set forth on Schedule 2.2(b) .

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE MEMBERS

The Members, jointly and severally, represent and warrant to Public Company (except with respect to the representations and warranties made in Section 3.28 , which are made only by the Executives), as of the date of this Agreement and as of the Closing Date (as if such representations and warranties were remade on the Closing Date), as follows:

3.1 Due Incorporation, etc.; Subsidiaries .

(a) The Company and the Subsidiary are duly organized, validly existing and in good standing under the laws of their respective jurisdictions of organization, with all requisite corporate power and authority to own, lease and operate their respective properties and to carry on their respective businesses as they are now being owned, leased, operated and conducted. The Company and the Subsidiary are licensed or qualified to do business and are in good standing as foreign corporations in each jurisdiction where the nature of the properties owned, leased or operated by them and the businesses transacted by them require such licensing or qualification.

(b) The jurisdictions in which the Company and the Subsidiary are licensed or qualified to do business as foreign companies are set forth on Schedule 3.1 . Except for the Subsidiary, the Company has no direct or indirect subsidiaries, either wholly or partially owned, and the Company does not hold or own beneficially any direct or indirect economic, voting or management interest in any Person or directly or indirectly own any security issued by any Person.

 

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(c) True, accurate and complete copies of the articles of incorporation, articles of organization, limited liability company agreement and bylaws (or similar organizational instruments), as amended, and all minutes of all meetings (or written consents in lieu of meetings) of the members, stockholders, Boards of Directors, manager (and all committees thereof) of the Company and the Subsidiary have been delivered to Public Company.

3.2 Due Authorization . Each Member has full power and authority to enter into this Agreement and its Related Agreements and to consummate the transactions contemplated hereby and thereby. The execution, delivery and performance by each Member that is an entity of this Agreement and its Related Agreements have been duly and validly approved by such Member’s board of directors, managers or other governing board, and no other actions or proceedings on the part of such Member are necessary to authorize this Agreement, the Related Agreements and the transactions contemplated hereby and thereby. Each Member has duly and validly executed and delivered this Agreement and has duly and validly executed and delivered (or prior to or at the Closing will duly and validly execute and deliver) its Related Agreements. This Agreement constitutes legal, valid and binding obligations of each Member and each Member’s Related Agreements upon execution and delivery by such Member will constitute legal, valid and binding obligations of such Member, in each case, enforceable in accordance with their respective terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, moratorium, reorganization or similar laws in effect which affect the enforcement of creditors’ rights generally and by equitable limitations on the availability of specific remedies.

3.3 Consents and Approvals; No Conflicts, etc.

(a) Except for the Required Consents set forth on Schedule 3.3 , no consent, authorization or approval of, filing or registration with, or cooperation from, any Governmental Authority or any other Person not a party to this Agreement is necessary in connection with the execution, delivery and performance by any Member of this Agreement and the execution, delivery and performance by any Member Related Agreements or the consummation of the transactions contemplated hereby or thereby.

(b) Except as set forth on Schedule 3.3 , the execution, delivery and performance by each Member of this Agreement and the execution, delivery and performance by each Member of any of their Related Agreements do not and will not (i) violate any Law applicable to Member, the Company, the Subsidiary or any of their respective properties or assets; (ii) violate or conflict with, result in a breach or termination of, constitute a default or give any third party any additional right (including a termination right) under, permit cancellation of, result in the creation of any Lien upon any of the assets or properties of such Member, the Company or the Subsidiary under, or result in or constitute a circumstance which, with or without notice or lapse of time or both, would constitute any of the foregoing under, any Contract to which such Member, the Company or any Subsidiary is a party or by which any of their respective assets or properties are bound; (iii) permit the acceleration of the maturity of any indebtedness of

 

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Member, the Company or the Subsidiary or indebtedness secured by any of the assets or properties of such Member, the Company or the Subsidiary; or (iv) violate or conflict with any provision of any of the articles of incorporation, articles of organization, limited liability company agreement, bylaws or similar organizational instruments of such Member, the Company or the Subsidiary.

3.4 Capitalization .

(a) All of the Membership Interests (i) are validly issued, fully paid and nonassessable and (ii) are, and when issued were, free of preemptive rights. The Members are the legal beneficial owners of 100% of the limited liability company membership interests in the Company, free and clear of any and all Liens.

(b) The authorized, issued and outstanding capital stock of the Subsidiary, and the legal and beneficial ownership thereof, are accurately set forth on Schedule 3.4. All of the outstanding shares of capital stock of the Subsidiary (i) are validly issued, fully paid and nonassessable, (ii) are, and when issued were, free of preemptive rights and (iii) are owned (legally and beneficially) by the Company, free and clear of any and all Liens.

(c) Except as set forth on Schedule 3.4 , there are no membership interests, shares of capital stock or other securities (whether or not such securities have voting rights) of the Company or the Subsidiary issued or outstanding or any subscriptions, options, warrants, calls, rights, convertible securities or other agreements or commitments of any character (i) obligating any Member, the Company or the Subsidiary or any of their respective Affiliates, (ii) obligating any Member or any of its Affiliates to cause the Company or the Subsidiary, or (iii) obligating the Company to cause the Subsidiary, in each case to issue, transfer or sell, or cause the issuance, transfer or sale of, any membership interests, shares of capital stock or other securities (whether or not such securities have voting rights) of the Company or the Subsidiary.

(d) Except as set forth on Schedule 3.4 , there are no outstanding contractual obligations of any Member, the Company or the Subsidiary which relate to the purchase, sale, issuance, repurchase, redemption, acquisition, transfer, disposition, holding or voting of any membership interests, shares of capital stock or other securities of the Company or the Subsidiary or the management or operation of the Company or the Subsidiary. Except for each Member’s rights as a holder of Membership Interests and except for employee benefit plans or bonus arrangements disclosed pursuant to Section 3.17 , no Person has any right to participate in, or receive any payment based on any amount relating to, the revenue, income, value or net worth of the Company and the Subsidiary or any component or portion thereof, or any increase or decrease in any of the foregoing.

(e) The instruments of transfer delivered by each Member to Public Company at the Closing will be sufficient to transfer such Member’s entire interest, legal and beneficial, in the Membership Interests. Other than the delivery of such instruments of transfer, no additional action, vote or consent of any Person is required to transfer to

 

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Public Company all rights of ownership, membership and management of the Company, without limitation. Each Member has, and on the Closing Date will have, full power and authority to convey good and marketable title to all of the Membership Interests, and upon transfer to Public Company of the Membership Interests, Public Company will receive good and marketable title to such Membership Interests, free and clear of all Liens.

3.5 Financial Statements; No Undisclosed Liabilities .

(a) The Financial Statements present fairly the consolidated financial position, assets and liabilities of the Company and the Subsidiary as of the dates thereof and the consolidated revenues, expenses, results of operations and cash flows of the Company and the Subsidiary for the periods covered thereby and changes in financial position of the Company and the Subsidiary as of the dates and for the periods covered thereby, in each case in conformity with GAAP applied consistently during such periods in accordance with the past accounting practices of the Company, subject (in the case only of any unaudited, interim financial statements included in the Financial Statements) to normal year-end audit adjustments required by the independent auditors of the Company in conformance with GAAP. The Financial Statements are in accordance with the books and records of the Company and the Subsidiary, do not reflect any transactions which are not bona fide transactions and do not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements contained therein, in light of the circumstances in which they were made, not misleading.

(b) The Financial Statements, including the notes thereto, make full and adequate disclosure of, and provision for, all material obligations and liabilities of the Company and the Subsidiary as of the date thereof. The Company and the Subsidiary have no liabilities, debts, claims or obligations (including “off-balance sheet” liabilities, debts, claims or obligations), whether accrued, absolute, contingent or otherwise, and whether due or to become due, other than (i) as set forth on Schedule 3.5 or in the Latest Balance Sheet and (ii) trade payables and accrued expenses incurred in the ordinary course of business since the date of the Latest Balance Sheet.

(c) The Closing Balance Sheet will present fairly the consolidated financial position, assets and liabilities of the Company and the Subsidiary as at the close of business on the date thereof and will have been prepared in conformity with GAAP applied consistently in accordance with the accounting practices of the Company used in preparation of the Financial Statements. The Closing Balance Sheet will be in accordance with the books and records of the Company and the Subsidiary, will not reflect any transactions which are not bona fide transactions and will not contain any untrue statements of a material fact or omit to state any material fact necessary to make the statements contained therein, in light of the circumstances in which they will be made, not misleading. The Closing Balance Sheet will make full and adequate disclosure of, and provision for, all material obligations and liabilities of the Company and the Subsidiary as of the date thereof. On the Closing Date, the Company and the Subsidiary will have no liabilities, debts, claims or obligations (including “off-balance sheet” liabilities, debts, claims or obligations), whether accrued, absolute, contingent or otherwise, due, or to become due, except as set forth on Schedule 3.5 or on the Closing Balance Sheet.

 

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(d) The Company has never paid a distribution to its members in respect of their membership interests.

3.6 No Adverse Effects or Changes . Except as set forth on Schedule 3.6 , since December 31, 2005, the Company and the Subsidiary have conducted their respective businesses and operations in all respects only in the ordinary course and consistent with past practices. Without limiting the foregoing, except as set forth on Schedule 3.6 , since December 31, 2005, neither the Company nor any Subsidiary has:

(a) suffered any Material Adverse Effect;

(b) suffered any damage, destruction or Loss to any of its assets or properties (whether or not covered by insurance);

(c) incurred any obligation or entered into any Contract which either (i) required a payment by any party in excess of, or a series of payments which in the aggregate exceed, $50,000 or provides for the delivery of goods or performance of services, or any combination thereof, having a value in excess of $50,000 or (ii) has a term, or requires the performance of any obligations by the Company or the Subsidiary over a period, in excess of six months;

(d) taken any action, or entered into or authorized any Contract or transaction other than in the ordinary course of business;

(e) sold, transferred, conveyed, assigned or otherwise disposed of any of its assets or properties, except sales of inventory in the ordinary course of business;

(f) waived, released or cancelled any claims against third parties or debts owing to it, or any rights which have any value;

(g) made any changes in its accounting systems, policies, principles or practices;

(h) entered into, authorized, or permitted any transaction with any Affiliate of any Member;

(i) authorized for issuance, issued, sold, delivered or agreed or committed to issue, sell or deliver (whether through the issuance or granting of options, warrants, convertible or exchangeable securities, commitments, subscriptions, rights to purchase or otherwise) any membership interests, shares of its capital stock or any other securities, or amended any of the terms of any such securities;

(j) declared, set aside or paid any dividend or other distribution (whether in cash, stock or property or any combination thereof) in respect of its membership interests, capital stock, or redeemed or otherwise acquired any securities of the Company or the Subsidiary;

 

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(k) made any borrowing, incurred any debt (other than trade payables in the ordinary course of business and consistent with past practice), or assumed, guaranteed, endorsed (except for the negotiation or collection of negotiable instruments in transactions in the ordinary course of business and consistent with past practice) or otherwise become liable (whether directly, contingently or otherwise) for the obligations of any other Person, or made any payment or repayment in respect of any indebtedness (other than trade payables and accrued expenses in the ordinary course of business and consistent with past practice);

(l) made any loans, advances or capital contributions to, or investments in, any other Person;

(m) entered into, adopted, amended or terminated any bonus, profit sharing, compensation, termination, equity option, equity appreciation right, restricted equity, performance unit, pension, retirement, deferred compensation, employment, severance or other employee benefit agreements, trusts, plans, funds or other arrangements for the benefit or welfare of any director, officer, consultant or employee, or increased in any manner the compensation or fringe benefits of any director, officer, consultant or employee or paid any benefit not required by any existing plan and arrangement or entered into any contract, agreement, commitment or arrangement to do any of the foregoing;

(n) except for capital expenditures contemplated by clause (o) , acquired, leased or encumbered any assets outside the ordinary course of business or any assets which are material to the Company or the Subsidiary;

(o) authorized or made any capital expenditures which individually or in the aggregate are in excess of $50,000;

(p) made any Tax election or settled or compromised any federal, state, local or foreign Tax liability, or waived or extended the statute of limitations in respect of any such Taxes;

(q) paid any amount, performed any obligation or agreed to pay any amount or perform any obligation, in settlement or compromise of any suits or claims of liability against the Company, the Subsidiary or any of their respective directors, officers, employees or agents; or

(r) terminated, modified, amended or otherwise altered or changed any of the terms or provisions of any Contract, or paid any amount not required by Law or by any Contract.

3.7 Title to Properties . Except as set forth on Schedule 3.7 , the Company and the Subsidiary have good and valid record and marketable title to, and are the lawful owners of, all of the tangible and intangible assets, properties and rights used in connection with their

 

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respective businesses and all of the tangible and intangible assets, properties and rights reflected in the Financial Statements (other than assets disposed of in the ordinary course of business since the date of such Financial Statements), free and clear of any Lien.

3.8 Condition and Sufficiency of Assets . Except as set forth on Schedule 3.8 , all of the tangible assets and properties of the Company, whether real or personal, owned or leased, have been well maintained and are in good operating condition and repair (with the exception of normal wear and tear), and are free from defects other than such minor defects as do not interfere with the intended use thereof in the conduct of normal operations or adversely affect the resale value thereof. Immediately after the Closing, the Company and the Subsidiary shall own or have a permanent right to use all the assets, properties, rights, know-how, key personnel, processes and ability which are required for or currently used in connection with the operation of their respective businesses as they are presently conducted. Such assets, properties, rights, know-how, key personnel, processes and ability were sufficient to produce the consolidated revenue of the Company and the Subsidiary prior to the Closing Date, as shown on the income statement for that year set forth on Schedule 1.1(a) .

3.9 Real Property .

(a) Schedule 3.9 sets forth true, accurate, complete and insurable legal descriptions of all of the real estate owned by the Company or the Subsidiary (the “ Real Property ”) Neither the Company nor the subsidiary is party to any lease or license of real property. The Real Property constitutes all of the land owned, held or used by the Company or the Subsidiary in the conduct of their respective businesses. The Member Representative has delivered to Public Company true, accurate and complete copies of the most recent title insurance policies and surveys (if any) for the Real Property in the possession of the Company or the Subsidiary, together with copies of all reports (if any) of any engineers, environmental consultants or other consultants in its possession relating to any of the Real Property.

(b) No parcel of land included in the Real Property relies on or regularly makes use of access to the nearest public road or right-of-way over land owned by others, except where such access is by means of one or more valid recorded easements not subject to divestiture, the terms of which have been disclosed in writing to Public Company prior to the date hereof. All covenants or other restrictions (if any) to which any of the Real Property is subject are being in all respects properly performed and observed and, do not provide for forfeiture or reversion of title if violated, and neither the Company nor the Subsidiary has received any notice of violation (or claimed violation) thereof.

(c) Each separate parcel of land included in the Real Property has adequate water supply, storm and sanitary sewer facilities, access to telephone, gas and electrical connections, fire protection, drainage and other public utilities, and has adequate parking facilities that meet all requirements imposed by applicable Laws. None of the Real Property is subject to any Lien, easement, right-of-way, building or use restriction, exception, variance, reservation or limitation as might in any material respect interfere with or impair the present and continued use thereof in the usual or planned conduct of the business of the Company or the Subsidiary.

 

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(d) Except as set forth on Schedule 3.9 , there is no pending or, to the Knowledge of the Company, threatened, proceeding or governmental action to modify the zoning classification of, or to condemn or take by the power of eminent domain (or to purchase in lieu thereof), or to classify as a landmark, or to impose special assessments on, or otherwise to take or restrict in any way the right to use, develop or alter, all or any part of the Real Property.

3.10 Intellectual Property . Schedule 3.10 sets forth a true, accurate and complete list of all of the Company’s Intellectual Property. Except as set forth on Schedule 3.10 :

(a) all of the Company’s Intellectual Property is owned by the Company or the Subsidiary free and clear of all Liens, and is not subject to any license, royalty or other agreement, and neither the Company nor the Subsidiary has granted any license or agreed to pay or receive any royalty in respect of any of the Company’s Intellectual Property;

(b) none of the Company’s Intellectual Property has been or is the subject of any pending or, to the Knowledge of the Company, threatened, litigation or claim of infringement;

(c) no license or royalty agreement to which the Company or the Subsidiary is a party is in breach or default by any party thereto or the subject of any notice of termination given or, to the Knowledge of the Company, threatened;

(d) the products and services produced and sold by the Company and the Subsidiary, any process, method, part, design, material or other Intellectual Property they employ, and the marketing and use by the Company and the Subsidiary of any such product, service or Intellectual Property, in each case do not infringe any Intellectual Property or confidential or proprietary rights of another Person, and neither the Company nor the Subsidiary has received any notice contesting its right to use any such Intellectual Property; and

(e) the Company and the Subsidiary own or possess adequate rights in perpetuity in and to all Intellectual Property necessary to conduct their respective businesses as presently and planned to be conducted.

3.11 Contracts . Schedule 3.11 sets forth a true, accurate and complete list of all Contracts and arrangements to which the Company or the Subsidiary is a party or by which either of them is bound, or to which any of their respective assets or properties is subject. The Member Representative has delivered to Public Company true, accurate and complete copies of each document set forth on Schedule 3.11 , and a written description of each oral arrangement so listed. Except as set forth on Schedule 3.11 , all such Contracts and arrangements have been entered into by the Company or the Subsidiary, as the case may be, in the ordinary course of business and are on terms that are no less favorable to the Company and the Subsidiary than the terms which could be obtained from an unrelated third party and, if cancelled at any time, would not have a Material Adverse Effect.

 

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3.12 Permits . Schedule 3.12 sets forth a true, accurate and complete list of all licenses, certificates, permits, variances, interim permits, permit applications, approvals, franchises, rights, code approvals and private product approvals (collectively, “ Permits ”) held by the Company or the Subsidiary. All such Permits are in full force and effect and, except as set forth on Schedule 3.12 , will not be affected by the contribution of the Membership Interests to Public Company hereunder. Except for the Permits set forth on Schedule 3.12 , there are no Permits, whether federal, state, local or foreign, which are necessary for the lawful operation of the respective businesses of the Company and the Subsidiary.

3.13 Insurance . Schedule 3.13 sets forth a true, accurate and complete list of all policies of fire, liability, workmen’s compensation, title and other forms of insurance owned, held by or applicable to the Company and the Subsidiary (and their respective businesses and assets), and the Member Representative has delivered to Public Company a true, accurate and complete copy of all such policies, including all occurrence-based policies applicable to the Company and the Subsidiary (and their respective businesses and assets) for all periods prio