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LLC MEMBERSHIP INTEREST PURCHASE AGREEMENT

LLC Membership Agreement

LLC MEMBERSHIP INTEREST PURCHASE AGREEMENT | Document Parties: CARBONICS CAPITAL CORPORATION | NEW EARTHSHELL CORPORATION | WESTPORT ENERGY ACQUISITION, INC | WESTPORT ENERGY, LLC You are currently viewing:
This LLC Membership Agreement involves

CARBONICS CAPITAL CORPORATION | NEW EARTHSHELL CORPORATION | WESTPORT ENERGY ACQUISITION, INC | WESTPORT ENERGY, LLC

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Title: LLC MEMBERSHIP INTEREST PURCHASE AGREEMENT
Governing Law: New York     Date: 8/19/2010
Industry: Chemical Manufacturing     Sector: Basic Materials

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LLC MEMBERSHIP INTEREST PURCHASE AGREEMENT

 

AMONG

 

NEW EARTHSHELL CORPORATION,

AS SELLER,

 

WESTPORT ENERGY, LLC,

 

 

WESTPORT ENERGY ACQUISITION, INC.,

AS BUYER,

 

AND

 

CARBONICS CAPITAL CORPORATION

 

 

 

 

August 17, 2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TABLE OF CONTENTS

 

 

1.

CERTAIN DEFINITIONS

 

 

 

 

2.

PURCHASE OF LLC INTERESTS

 

 

 

 

3.

WARRANTIES AND REPRESENTATIONS RELATING TO BUYER AND CARBONICS

 

 

 

 

4.

WARRANTIES AND REPRESENTATIONS RELATING TO CARBONICS

 

 

 

 

5.

WARRANTIES AND REPRESENTATIONS RELATING TO SELLER AND WESTPORT

 

 

 

 

6.

COVENANTS

 

 

 

 

7.

ADDITIONAL AGREEMENTS

 

 

 

 

8.

CONDITIONS TO THE ACQUISITION

 

 

 

 

9.

CERTAIN TAX MATTERS

 

 

 

 

10.

TERMINATION

 

 

 

 

11.

GENERAL

 

 

 

 

 

 

 

SCHEDULES

 

 

 

SCHEDULE 3

BUYER’S DISCLOSURE SCHEDULE

 

 

SCHEDULE 4

SELLER’S DISCLOSURE SCHEDULE

 

 

SCHEDULE 6.7

POST-CLOSING CAPITAL STRUCTURE

 

 

 

 

EXHIBITS

 

 

EXHIBIT A

LLC INTEREST ASSIGNMENT

 

 

EXHIBIT B

NEW EARTHSHELL DEBENTURE

 

 

EXHIBIT C

SECURITY AGREEMENT

 

 

EXHIBIT D

GUARANTY AGREEMENT

 

 

EXHIBIT E

 

EXHIBIT F

PLEDGE AGREEMENT

 

GREENSHIFT INDEMNIFICATION

 

 

EXHIBIT G

STOCK PURCHASE AGREEMENT-SERIES 2 PREFERRED SHARES

 

 

--

 

 

 

 

 

 

LLC MEMBERSHIP INTEREST PURCHASE AGREEMENT

 

 

 

This LLC MEMBERSHIP INTEREST PURCHASE AGREEMENT (this “ Agreement ”), dated as of this 17th day of August, 2010 is entered into by and among WESTPORT ENERGY ACQUISITION, INC ., a Delaware corporation with a principal address at One Penn Plaza, Suite 1612, New York, NY 10119 (“ Buyer ”), CARBONICS CAPITAL CORPORATION , a Delaware corporation with a principal address at One Penn Plaza, Suite 1612, New York, NY 10119 and the sole shareholder of Buyer ( “Carbonics” ), NEW EARTHSHELL CORPORATION , a Delaware corporation with a principal address at 101 Hudson Street, Suite 3700, Jersey City, NJ 07302 (“ Seller ”), and   WESTPORT ENERGY, LLC , a Delaware limited liability company with a principal address at 101 Hudson Street, Suite 3700, Jersey City, NJ 07302 (“Westport” ).

 

 

A.   Seller owns all of the Equity Interests in Westport ( the “LLC Interests” ).

 

B.   Carbonics, which is publicly traded on the OTC Bulletin Board ( “OTCBB” )   under the symbol “CICS”, is the owner of all of the outstanding capital stock of Buyer.

 

C.   Seller desires to sell the LLC Interests to Buyer, and Buyer desires to purchase the LLC Interests from Seller.

 

D.   The parties also desire that (i) Stephen Schoepfer shall be appointed to the board of directors of Carbonics and the directors and officers of Carbonics, who hold those positions immediately prior to the Closing, shall resign; (ii) immediately following the Closing Carbonics shall sell its subsidiary, Sustainable Systems, Inc., a Montana corporation ( “Sustainable” ); and (iii) GreenShift Corporation (“Greenshift” ) shall indemnify Carbonics and YA Global Investments L.P., a Cayman Islands limited partnership ( “YA Global” ) (and their respective directors, members, partners, officers, employees and agents) in connection with certain existing and potential liabilities, all as more particularly set forth in this Agreement.

 

Intending to be legally bound, the parties agree as follows:

 

1.           Certain Definitions.

 

Action ” shall mean any claim, action, cause of action or suit (in contract, tort or otherwise), inquiry, proceeding or investigation by or before any Governmental Authority.

 

Affiliate ” shall mean, any Person directly or indirectly controlling, controlled by or under common control with the Carbonics Entities (or such specified Person).  For purposes of this definition, the term “ control ” including the terms “ controlling ”, “ controlled by ” and “under common control with”) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities or otherwise.

 

Business ” shall mean the collective business of the Carbonics Entities as such business is currently conducted.

 

Business Day ” shall mean any day on which national banking institutions are customarily open for the purpose of transacting business.

 

“Buyer Disclosure Schedule” shall mean the disclosure schedule set forth in Schedule 4.

 

Bylaws ” shall mean the corporate bylaws of the Carbonics Entities, as they may be amended, as from time to time in effect.

 

Carbonics Entities ” shall mean collectively, Carbonics, the Buyer, and immediately upon the Closing, Westport.

 

Certificate ” shall mean any outstanding certificate or other document representing an ownership interest in Westport.

 

Charter ” shall mean the certificate or articles of incorporation or organization or other charter documents, certificate of limited partnership or other organizational documents, including trust documents and limited liability company operating agreements, of any Person (other than an individual), each as from time to time in effect.

 

“Cross Guarantees” means that certain global guarantee agreement dated January 11, 2008, as amended, with Carbonics and Greenshift each as guarantor thereunder, pursuant to which Carbonics has guaranteed certain obligations of Greenshift and Greenshift has guaranteed certain obligations of Carbonics.

 

Debt ” shall mean all material obligations of such Person (i) for borrowed money, (ii) evidenced by notes, bonds, debentures or similar instruments, other than operating leases and (iii) the nature of guarantees of obligations of the type described in clauses (i) and (ii) above of any other Person.

 

“Directors” shall mean the members of the board of directors and the managing members, as the case may be, of the Carbonics Entities.

 

Environmental Laws ” shall mean any federal, state or local law as in effect as of the date hereof relating to (i) releases or threatened releases of Hazardous Substances; and (ii) the manufacture, handling, transport, use, treatment, storage or disposal of Hazardous Substances.

 

“Exchange Act” shall mean the Securities and Exchange Act of 1934, as amended, or any successor law and regulations and rules issued pursuant to that Act or any successor law.

 

Generally Accepted Accounting Principles ” shall mean generally accepted accounting principles in the United States as in effect and applied in the preparation of Financial Statements.

 

Hazardous Substance ” shall mean (i) substances defined in or regulated as toxic or hazardous under the following federal statutes and their state counterparts, as well as these statutes implementing regulations in each case, as amended and as in effect as of the date hereof:  the Hazardous Materials Transportation Act, the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Clean Water Act, The Safe Drinking Water Act, the Asbestos Hazard Emergency Response Act, the Atomic Energy Act, the Toxic Substances Control Act, the Federal Insecticide, Fungicide and Rodenticide Act; (ii) petroleum and petroleum products, include crude oil and any fractions thereof; (iii) natural gas, synthetic gas and any mixtures thereof; (iv) PCBs and (v) asbestos.

 

Legal Requirement ” shall mean any material federal, state or local statute, ordinance, code, rule or regulation, or any material Governmental Order, or any material license, franchise, consent, approval, permit or similar right granted under any of the foregoing.

 

Lien ” shall mean any material mortgage, pledge, lien, security interest, attachment or encumbrance, provided, however, that the term “Lien” shall not include (i) statutory liens for Taxes; (ii) encumbrances in the nature of zoning restrictions, easements, rights or restrictions of record on the use of real property if the same do not materially detract from the value of the property encumbered thereby or materially impair the use of the property in the Business as currently conducted or proposed to be conducted; (iii) statutory or common law liens to secure landlords, lessors or renters under leases or rental agreements confined to the premises rented; (iv) deposits or pledges made in connection with, or to secure payment of, worker’s compensation, unemployment insurance, old age pension programs mandated under applicable Legal Requirements or other social security; (v) statutory or common law liens in favor of carriers, warehousemen, mechanics and materialmen, statutory or common law liens to secure claims for labor, materials or supplies and other like liens, and (vi) restrictions on transfer of securities imposed by applicable state and federal securities laws.

 

 “ Material Adverse Effect ” shall mean any event, occurrence, fact, condition or change that is, or is reasonably expected to become, individually or in the aggregate, materially adverse to (a) the business, results of operations, prospects, condition (financial or otherwise) or assets of any Carbonics Entities, or (b) the ability of any party to consummate the transactions contemplated hereby on a timely basis.

 

“MIF Debentures” shall mean all obligations owed to MIF directly or indirectly by Carbonics, whether or not evidenced by a note, debenture, or other written instrument, including, without limitation, the convertible debt issued on September 30, 2009 and October 31, 2009.

 

Officers ” shall mean all officers of the Carbonics Entities.

 

Ordinary Course of Business ” shall mean the ordinary course of business consistent with current custom and practice.

 

Person ” shall mean any individual, partnership, corporation, limited liability company, association, trust, joint venture, unincorporated organization or other entity other than any Governmental Authority.

 

“Securities Act” shall mean the Securities Act of 1933, as amended, or any successor law and regulations and rules issued pursuant to that Act or any successor law;

 

“Seller Disclosure Schedule” shall mean the disclosure schedule set forth in Schedule 3.

 

“Series C Purchaser” shall mean 4 Sea-Sons LLC a Delaware limited liability company.

 

Share ” shall mean any share of capital stock of the Carbonics Entities issued and outstanding immediately prior to the Closing.

 

“Viridis” shall mean Viridis Capital, LLC, a New Jersey limited liability company.

 

“YA Global Debentures” shall mean all secured convertible debentures, notes, or other indebtedness now owed by Carbonics to YA Global or hereinafter incurred, including, without limitation, the following: (a) debenture No. CCP-4 in the original principal amount of $3,050,369 and an issuance date of February 8, 2008, (b) debenture No. CCP-3 in the original principal amount of $1,475,000 and an issuance date of December 12, 2005; (c) debenture No. GSHF-3-1 in the original principal amount of $570,000 and an issuance date of June 26, 2007, and (d) debenture No. CICS-5 in the original principal amount of $4,000,000 and an issuance date of June 30, 2009.

 

2.           PURCHASE OF LLC INTERESTS.

 

 

2.1         Sale of the LLC Interests .  On and subject to the terms and conditions of this Agreement, at the Closing, Seller shall sell, assign, transfer and deliver the LLC Interests to the Buyer. The assignment of the LLC Interests shall be in the form set forth in Exhibit A (the “LLC Interest Assignment” ). The purchase of the LLC Interests by Buyer is referred to herein as the “ Acquisition ”.

 

2.2         Purchase Price .  On and subject to the terms and conditions of this Agreement, Buyer shall deliver the purchase price of [$29,653,031] at the Closing.  The purchase price shall be paid by the issuance of a senior secured convertible debenture by Carbonics as “borrower” and Seller as “lender” (the “New Earthshell Debenture” ) properly executed by Carbonics in the form set forth in Exhibit B , which shall be guaranteed by the Carbonics Entities (including Westport) and secured by all the assets of the Carbonics Entities, including the LLC Interests purchased hereunder and the assets of Westport.

 

2.3              Pre-Closing Matters .

 

(a)                Deliveries .                   Carbonics shall deliver, or cause to be delivered, the following items prior to the “Closing:”

 

(i)  

Evidence, satisfactory to New Earthshell, that all amounts owed (including all principal and accrued interest) under the unsecured convertible debentures held by RAKJ Holdings, Inc. have been paid in full.

 

(ii)  

Letter agreement from Minority Interest Fund (II), LLC (“ MIF ”) confirming that they will convert the outstanding principal and accrued interest under the MIF Debentures into 500,000,000 shares of Carbonics common stock, in satisfaction in full of all the MIF Debentures.

 

(iii)  

Opinion letter from Carbonics’ attorney concluding that (i) shareholder approval is not required in connection with the acquisition of the Westport LLC Interest by Buyer and the related transactions contemplated by this Agreement, and (i) that Carbonics is not, and since January 1, 2009 Carbonics has never been, an issuer described in paragraph (i)(1)(i) (a shell company) of Rule 144 of the Securities Act.

 

(iv)  

Agreement reversing the purported Series D Preferred shares pursuant to those certain settlement agreements with two former shareholders of Sustainable Systems, Inc., in form and substance satisfactory to New Earthshell.

 

(v)  

Letter agreement from MIF, in form and substance satisfactory to Seller, agreeing that it will (a) assume all payment obligations with respect to the default judgment entered against Carbonics in favor of Golden State Equity Investors ( “GSEI” ) in the amount of $62,500.00 ( “GSEI Judgment” ); (b) obtain GSEI’s written agreement (i) to the assumption of the GSEI Judgment obligations by MIF; (ii) that GSEI will look solely to MIF with the respect to enforcement of the GSEI Judgment and (iii) that GSEI will release Carbonics from any liability in connection with the GSEI Judgment; and (c) indemnify and hold harmless Carbonics and Westport from liability of any kind in connection with the GSEI Judgment.

 

(vi)  

Carbonics shall provide an opinion letter from its attorney confirming that the assignment of certain debentures issued by GS AgriFuels Corporation to Carbonics was not effective and that such GS AgriFuels Debentures cannot be enforced against Carbonics.

 

(vii)  

Certification in form and substance satisfactory to New Earthshell confirming that the Carbonics Entities are not subject to any consulting agreements and that all such prior agreements have expired and are of no further force and effect.

 

(viii)  

 Such other pre-closing deliveries as the parties may agree upon.

 

2.4             The Closing.   Upon the terms and subject to the conditions hereinbefore and hereinafter set forth, the consummation of this Agreement and the Acquisition contemplated herein (the " Closing ") shall take place at such time and place on August 17, 2010, or, if all of the conditions to the Closing are not satisfied on that date, on the first date thereafter on which all of such conditions are satisfied. The date on which the Closing occurs is referred to in this Agreement as the “ Closing Date .”  The Closing may take place by delivery and exchange of documents by facsimile or electronic mail with originals to follow by overnight courier.

 

2.5             Deliveries and Actions of Seller at Closing .  At or prior to Closing, Seller shall deliver (or cause to be delivered) to Buyer the following:

 

(a)  

       Assignment .  An executed counterpart of the LLC Interest Assignment;

  

(b)            Authorizing Resolutions .  Copies of resolutions duly adopted by Seller authorizing and approving its performance of the transactions contemplated hereby and the execution and delivery of this Agreement and the Transaction Documents, certified as true and in full force as of the Closing Date;

 

(c)            Company Documents .  The original minute books of Westport;

 

(d)            Resignations .  Signed written resignations of all managing members and officers of Westport who hold such positions immediately prior to the Closing.

 

(e)            Good Standing Certificate .  A certificate of existence or good standing for Westport from the Secretary of State of its state of organization dated no more than one (1) month prior to the Closing Date;

 

(f)            Execution of Agreements .  The Seller shall execute and deliver to the other parties, copies of each of the transaction documents that are to be signed by the Seller, including without limitation the LLC Interest Assignment, Security Agreement, and Pledge Agreement.

   

2.6            Actions of Buyer and Carbonics at Closing .  At Closing, Buyer and/or Carbonics shall deliver to Seller (unless another party is specified below for such deliveries in lieu of, or in addition to, Seller) the following:

 

(a)            Payment of Purchase Price .  Carbonics shall deliver a fully executed original of the New Earthshell Debenture, in a principal amount representing the amount due pursuant to Section 1.2(a);

 

(b)            Indemnification .  Carbonics and the Buyers shall deliver a fully executed counterpart of the GreenShift Indemnification

 

(c)            Authorizing Resolutions .  Copies of resolutions duly adopted by Buyer and Carbonics authorizing and approving its performance of the transactions contemplated hereby and the execution and delivery of this Agreement and the Transaction Documents, certified as true and in full force as of the Closing Date;

  

(d)            Resignations . Written resignations of (i) all of Carbonics’ officers, who hold those positions immediately prior to the Closing, which shall provide that such resignations shall become effective immediately following the Closing and (ii) all of Carbonics’ directors, who hold those positions immediately prior to the Closing, which shall provide that such resignations shall become effective ten (10) days following the mailing the 14 f-1 Information Statement;

(e)            Security Agreement .  An executed original security agreement (the “ Security Agreement ”) securing the New Earthshell Debenture in the form set forth in Exhibit C to this Agreement signed by Carbonics, the Buyer, Westport and the other Carbonics subsidiaries identified therein;

 

(g)            Guaranty Agreement . An executed original guaranty agreement (the “ Guaranty Agreement ”) guarantying certain obligations of Carbonics to Seller in the form set forth in Exhibit D to this Agreement signed by Westport, the Buyer, and the other parties identified therein;

 

(h)            Pledge Agreement . An executed original pledge agreement (“ Pledge Agreement ”) securing the New Earthshell Debenture in the form set forth in Exhibit E to this Agreement signed by Carbonics, Westport, the Buyer, and the other parties identified therein; and

 

(i)            Other .  Such other instruments and documents as Seller may reasonably request to effect the transactions contemplated hereby.

 

2.7             Taking of Necessary Action; Further Action .  The Buyer, Seller, Westport and Carbonics will take all reasonable and lawful action as may be necessary or appropriate in order to effectuate the Acquisition in accordance with this Agreement as promptly as possible.

 

 

3.             Warranties and Representations Relating to Buyer and Carbonics.

 

Buyer and Carbonics hereby jointly and severally represent and warrant to Seller and Westport as follows, subject to any exceptions to such warranties and representations as may be specified in the Buyer Disclosure Schedule:

 

3.1             Due Organization, Authorization and Good Standing of the Carbonics Entities . The Carbonics Entities are duly organized, validly existing and in good standing under the laws of their respective jurisdiction of organization.  The Carbonics Entities are qualified to do business and are in good standing as a foreign Person, as the case may be, in each jurisdiction in which the ownership of its properties and the nature and extent of the activities transacted by it makes such qualification necessary. The Carbonics Entities have full corporate power and corporate authority to carry on their respective businesses, to own and use the properties owned and used by them and to perform their obligations under this Agreement.

 

3.2             Capitalization .   All of the issued and outstanding shares of capital stock of the Carbonics Entities are duly authorized, validly issued, fully paid and non-assessable. Carbonics is the sole shareholder of Buyer and owns all of the outstanding capital stock of Buyer. The capitalization summaries set forth in §3.2 of the Buyer Disclosure Schedule reflect the outstanding capital stock, warrants, options and convertible debentures of each of the Carbonics Entities, and except as set forth therein, there are no warrants, rights, options, conversion privileges, stock purchase plans or other contractual obligations which obligate the Carbonics Entities to offer, issue, purchase or redeem any shares of their capital stock or other ownership interest or debt or other securities convertible into or exchangeable for capital stock or such other ownership interest (now, in the future or upon the occurrence of any contingency) or which provides for any equity appreciation or similar right.

 

3.3             Authority Relative to this Agreement .  The Carbonics Entities have the requisite power and authority to enter into, execute, deliver and perform this Agreement, and/or to consummate all transactions contemplated thereby. The execution and delivery of this Agreement by the relevant Carbonics Entities and the consummation by the applicable Carbonics Entities of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action, and no other corporate or partnership proceedings on the part of the Carbonics Entities are necessary to authorize this Agreement or to consummate the transactions so contemplated.  This Agreement is the valid and legally binding obligation of the applicable Carbonics Entities, enforceable against them in accordance with the terms, subject to bankruptcy, insolvency, moratorium, reorganization and similar laws of general applicability affecting the rights and remedies of creditors and to general principles of equity, regardless of whether enforcement is sought in proceedings in equity or at law.

 

3.4             No Violation or Approval .

 

(a)           Except as set forth on §3.4 of the Buyer Disclosure Schedule, the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby will not result in the breach or violation of, or a default under the Charter or Bylaws of any of the Carbonics Entities, or any statute applicable to the Carbonics Entities or any material agreement to which the Carbonics Entities are a party or by which any of its properties are bound, any fiduciary duty or any order, judgment, decree, rule or regulation of any court or any Government Authority or body having jurisdiction over the Carbonics Entities or its properties, except where such failure would not have a Material Adverse Effect.  Except as set forth in §3.4 of the Buyer’s Disclosure Schedule, no consent, approval, order or authorization of, or negotiation, declaration or filing with, any Governmental Authority or entity or other party is required of, and has not been obtained or made by any of the Carbonics Entities in connection with the execution and delivery of this Agreement or the consummation of any of the transaction contemplated hereby, except where such failure would not have a Material Adverse Effect.

 

(b)           There is no Action pending against, affecting or, to the knowledge of the Directors or Officers, threatened against any of the Carbonics Entities or any of their respective properties before any court or arbitrator or any governmental body, agent or official which in any manner challenges or seeks to prevent, enjoin, alter or materially delay any of the transactions contemplated by this Agreement or would materially adversely effect the Carbonics Entities’ ability to consummate the transactions contemplated hereby.

 

3.5            SEC Documents

(a)   All statements, reports, schedules, forms, exhibits and other documents required to have been filed by Carbonics with the U.S. Securities and Exchange Commission (the “SEC“ ) for the two years prior to the date hereof (the "SEC Documents" ) have been so filed and Carbonics is not delinquent in respect of any such required filings.  Carbonics Entities are engaged only in the business described in the SEC Documents and the SEC Documents contain a complete and accurate description in all material respects of the business of the Carbonics Entities, taken as a whole.

(b)   At the time of filing thereof, the SEC Documents complied as to form in all material respects with the requirements of the Exchange Act and did not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading.

(c)   Each registration statement and any amendment thereto filed by Carbonics pursuant to the Securities Act and the rules and regulations thereunder, as of the date such statement or amendment became effective, complied as to form in all material respects with the Securities Act and did not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading; and each prospectus filed pursuant to Rule 424(b) under the Securities Act, as of its issue date and as of the closing of any sale of securities pursuant thereto did not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading.

 

3.6             Financial Statements, Etc .  Carbonics‘ consolidated quarterly and annual audited financial statements are contained in the Form 10-Qs and Form 10-Ks filed to date by Carbonics with the U.S. Securities and Exchange Commission via EDGAR (the “ Financial Statements ”). The Financial Statements present fairly, in all material respects, the combined financial position of the Carbonics Entities and the combined results of their operations as of the dates and for the periods specified therein in conformity with Generally Accepted Accounting Principles.

 

3.7             Absence of Changes; Operations in Ordinary Course .

 

(a)           Except as set forth on §3.7(a) of the Buyer Disclosure Schedule, and except as otherwise required or permitted by the terms of this Agreement, since December 31, 2009, the Carbonics Entities have not incurred any liability of any nature whatsoever, whether absolute, accrued, contingent, determined, determinable or otherwise, nor has there occurred any condition, situation or set of circumstances which could reasonably result in such a liability, in each case other than (i) liabilities incurred in the Ordinary Course of Business, (ii) liabilities to the extent covered by insurance, and (iii) such liabilities as do not and will not have a Material Adverse Effect.

 

(b)           Since December 31, 2009, and except as set forth on §3.7(b) of the Buyer Disclosure Schedule, the Carbonics Entities have not (i) increased the compensation of any of its directors, officers, employees or affiliates other than in the Ordinary Course of Business, (ii) incurred any Debt,  (iii) entered into or performed any contract, agreement, deed, mortgage, lease, license, other instrument, commitment, undertaking, arrangement or understanding, or other transaction, not in the Ordinary Course of Business, other than as specifically contemplated by this Agreement, or (iv) made any loan or advance of funds or assets of any kind, or forgiven any loan or advance to any Person other than in the Ordinary Course of Business.

 

3.8             Taxes .

 

(a)           For the purposes of this Agreement, “ Tax ” or “ Taxes ” shall mean taxes, fees, levies, duties, tariffs, imposts, and governmental impositions or charges of any kind in the nature of (or similar to) taxes, payable to any federal, state, local or foreign taxing authority, including, without limitation, (i) income, franchise, profits, gross receipts, ad valorem , net worth, value added, sales, use, service, real or personal property, special assessments, capital stock, license, payroll, withholding, employment, social security, workers’ compensation, unemployment compensation, utility, severance, production, excise, stamp, occupation, premiums, windfall profits, transfer and gains taxes, and (ii) interest, penalties, additional taxes and additions to tax imposed with respect thereto; and “ Tax Returns ” shall mean returns, reports, and information statements with respect to Taxes required to be filed with the Internal Revenue Service (“ IRS ”) or any other federal, foreign, state or provincial taxing authority, domestic or foreign, including, without limitation, consolidated, combined and unitary tax returns.

 

(b)           Except as set forth on §3.8(b) of the Buyer Disclosure Schedule, the Carbonics Entities have duly filed, on a timely basis all Tax Returns which they are required to file, and all material liabilities for Tax (including interest and penalties) have been paid.  The Carbonics Entities have paid all required withholding taxes with respect to employees and independent contractors.  Except as set forth in §3.8(b) of the Buyer Disclosure Schedule, there are in effect no waivers or extensions of the applicable statutes of limitations for tax liabilities for any period.  Except as set forth in §3.8 of the Buyer Disclosure Schedule, no taxing authority has asserted either orally or in writing any adjustment that could result in an additional Tax for which the Carbonics Entities are or may be liable and there is no pending audit, examination, investigation, dispute, proceeding or claim for which the Carbonics Entities have received notice relating to any Tax for which any one of them is or may be liable.

 

 (c)           Except as set forth in §3.8(c) of the Buyer Disclosure Schedule, there are no agreements in writing with any taxing authority by the Carbonics Entities.

 

(d)           Except as set forth in §3.8(d) of the Buyer Disclosure Schedule, the Carbonics Entities have not been nor is it included in any consolidated, affiliated, combined, unitary or other similar Tax Returns and there are no tax sharing agreements to which the Carbonics Entities have now or ever has been a party.

 

(e)           Except as set forth in §3.8(e) of the Buyer Disclosure Schedule, the Carbonics Entities are not a party to any agreement, contract, arrangement or plan that would result in the payment of any “excess parachute payments” within the meaning of Code Section 280G (or any comparable provision of state, local or foreign law).

 

3.9             Title to Assets . The Carbonics Entities have good and marketable title to all of the assets reflected in the Financial Statements as owned by them (other than assets disposed of since the date of the last Financial Statements in the Ordinary Course of Business or as contemplated by this Agreement) or acquired by them since the date of the last Financial Statements, free and clear of any and all Liens, except as set forth in §3.9 of the Buyer Disclosure Schedule.

 

3.10             Real Property . §3.10 of the Buyer Disclosure Schedule lists all real property leased or subleased by the Carbonics Entities.  Each real property owned, lease or sublease listed in §3.10 of the Buyer Disclosure Schedule is legal, valid, binding and enforceable and is in full force and effect except where the illegality, invalidity, nonbinding nature, unenforceability or ineffectiveness would not have a Material Adverse Effect, and no event or condition exists which constitutes or, with the giving of notice or the passage of time or both, would constitute a material default by the Carbonics Entities as lessee under any such lease or sublease.

 

3.11             Operations in Conformity with Law, Etc .   Except as set forth in §3.11 of the Buyer Disclosure Schedule, the Carbonics Entities have not been nor are in violation of, or in default under, any Legal Requirement, except for such violations and defaults as do not and will not have a Material Adverse Effect.

 

3.12             Employee Matters; Benefit Plans .   Except as provided §3.12 of the Buyer Disclosure Schedule:

 

(a)           The Carbonics Enties do not maintain any plan, program or arrangement that is an “employee benefit plan” within the meaning of Section 3(3) of the Employee Retirement Income Security Act (“ERISA”) or that otherwise provides for fringe benefits to any employee or former employee of the Carbonics Entities or any of their dependents, including without limitation benefits in the nature of medical, life or disability insurance, retirement plans, stock purchase, stock option, equity incentive compensation or equity bonus plans (together, the “ Company Plans ”);

 

(b)           The Company Plans are in compliance with applicable Legal Requirements;

 

(c)           The Company Plan does not provide for medical insurance benefits following termination of employment except as required by applicable Legal Requirements; and

 

(d)           There are no pending or, to the knowledge of the Officers or Directors, threatened claims with respect to any Company Plan, except for claims for benefits in the normal course, and no Company Plan is the subject of an audit or examination by a Governmental Authority.

 

3.13             Labor Relations .   Except as set forth in §3.13 of the Buyer Disclosure Schedule hereto, there presently is no existing dispute or controversy between the Carbonics Entities and any of its employees which has had, or is reasonably likely to have, a Material Adverse Effect.  The Carbonics Entities are in compliance in all material respects with all written employment agreements.  Except as set forth in §3.13 of the Buyer Disclosure Schedule, none of the Carbonics Entities’ employees are represented by a labor union.

 

3.14             Licenses, Etc . All material governmental or regulatory licenses and permits used by the Carbonics Entities are in full force and effect and no violations have been recorded in respect thereof.  No proceeding or investigation is pending or, to the knowledge of the Officers or Directors, threatened which could have the effect, directly or indirectly, of revoking or limiting in any way any such license or permit, except for such failures to be in full force and effect, such violations, and such proceedings or investigations as in the aggregate do not and will not have a Material Adverse Effect.

 

3.15             Trademarks, Marks, Etc . Listed in §3.15 of the Buyer Disclosure Schedule are all material trademarks, service marks and copyrights owned or used by the Carbonics Entities.   Except as set forth in §3.15 of the Buyer Disclosure Schedule, to the knowledge of the Officers or Directors, no other Person uses or has used, the tradenames, trademarks, service marks or other  marks, names, copyrights or proprietary rights owned or used by the Carbonics Entities.  The Carbonics Entities’ right to each such trademark, service mark or other mark, names, copyrights and proprietary rights is held by it free and clear of all Liens, and no claims have been asserted or, to the knowledge of the Officers or Directors, are threatened by any Person to prevent or in any way limit the use or exercise by the Carbonics Entities of any of such assets or to challenge the validity or effectiveness of the ownership thereof by the Carbonics Entities.

 

3.16             Environmental Matters .   The Carbonics Entities are, as of the date hereof, in compliance with all Environmental Laws.  There is, as of the date hereof, no Action pending or, to the knowledge of the Officers or Directors, threatened against the Carbonics Entities in respect of (i) noncompliance by the Carbonics Entities with any Environmental Laws or (ii) the release or threatened release into the environment of any Hazardous Substance by the Carbonics Entities or (iii) the handling, storage, use, transportation or disposal of any Hazardous Substance by the Carbonics Entities.

 

3.17             Contractual Obligations . §3.17 of the Buyer Disclosure Schedule contains a true and complete list of all contracts, agreements, deeds, mortgages, leases, licenses, instruments, commitments, undertakings, arrangements or understandings, written or oral, and to which or by which the Carbonics Entities are a party or otherwise bound, which are of the types described below (collectively “ Contractual Obligations ”):

 

(a)           All employment agreements, consulting agreements and all outstanding offers of employment.

 

(b)           All Contractual Obligations to sell, lease (as lessor) or otherwise dispose of any personal property or asset of the Carbonics Entities except in the Ordinary Course of Business;

 

(c)           All Contractual Obligations pursuant to which the Carbonics Entities possess, use or lease (as lessee) any personal property or assets pursuant to which the Carbonics Entities pay, accrue expenses of, or incur charges of at least $5,000 per annum;

 

(d)           To the knowledge of Officers and Directors, all Contractual Obligations pursuant to which the Carbonics Entities provide services to a third party.

 

The Carbonics Entities, to the knowledge of the Officers and Directors, are not in default under or in breach or violation of, nor has an event occurred in which (with or without notice, lapse of time or both) would constitute a default by the Carbonics Entities or, to the knowledge of the Officers and Directors, or any party under any Contractual Obligation, other than defaults, breaches or violations of such Contractual Obligations as will not have a Material Adverse Effect.

 

3.18             Accounts Payable & Receivable . §3.18 of the Buyer Disclosure Schedule sets forth all accounts payable and receivable with respect to each Carbonics Entity as of the date of this Agreement. Except as set forth in §3.18 of the Buyer Disclosure Schedule, no accounts receivable have been assigned or pledged to any other Person, and no setoff to any such account has been asserted by the account obligor in excess of reserves provided therefore.

 

3.19             Bank Accounts . §3.19 of the Buyer Disclosure Schedule lists all bank, money market, savings and similar accounts and safe deposit boxes of the Carbonics Entities, specifying the account numbers and the authorized signatories or persons having access to them.

 

3.20             Insurance . §3.20 of the Buyer Disclosure Schedule accurately sets forth a list of all current policies of insurance held by the Carbonics Enties.  All such policies of insurance are in full force and effect, and no notice of cancellation has been received with respect thereto, and all premiums owed to date have been paid in full.

 

3.21             Brokers, Finders, Etc . No broker, finder or investment banker or other party is entitled to any brokerage, finder’s or similar fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of any of the Carbonics Entities.

 

3.22             Affiliated Transactions . Except as set forth in §3.22 of the Buyer Disclosure Schedule, none of the Directors or Officers, or to the knowledge of the Directors or Officers, any members of their immediate families owns, directly or indirectly (whether as undisclosed principal or otherwise), individually or collectively, any interest in any corporation (other than holdings in any such corporation, the stock of which is publicly traded, which do not constitute more than five percent (5%) of the voting stock of such corporation), partnership, firm or other entity which has any agreement, arrangement or other contractual relationship with the Carbonics Entities.

 

3.23             Charter, Bylaws, Minutes and Permits .   The Carbonics Entities have heretofore delivered or caused to be delivered (or will hereinafter deliver or cause to be delivered prior to the Closing Date) to Seller or its counsel accurate and complete copies of the Charter, Bylaws, directors’ and stockholders’ minutes and written consents and stock and/or LLC membership books for the Carbonics Entities.  Nothing contained in any of the foregoing prevents or adversely affects the consummation of the transactions contemplated by this Agreement.

 

3.24             Litigation . There is no Action pending against, affecting or, to the knowledge of the Directors or Officers, threatened against the Carbonics Entities or any of its respective properties before any court or arbitrator or any governmental body, agent or official which seeks damages, affects any of the property or Assets of the Carbonics Entities or in any manner challenges or seeks to prevent, enjoin, alter or materially delay any of the transactions contemplated by this Agreement or would materially adversely affect the Carbonics Enties’ ability to consummate the transactions contemplated hereby.

 

3.25             Joint Ventures . The Carbonics Entities are not partners, co-tenants, joint venturers or otherwise a participant in any partnership, joint venture, co-tenancy or other jointly owned business undertaking.

 

3.26             Restrictive Covenants . The Carbonics Entities are not a party to or bound or affected by any commitment, agreement or document which limits the freedom of the Carbonics Entities to compete in any line of business, transfer or move any of the Assets or operations or which does or could materially and adversely affect the business practices, operations or condition of their respective businesses or the continued operation of their respective businesses after the Closing.

 

3.27             Worker’s Compensation . There are no notices of assessment or any other communications which the Carbonics Entities have received from any workplace safety and insurance board or similar authorities and there are no assessments which have not been paid or accrued on the date hereof, and there are no facts or circumstances which may result in a material increase in liability to any of the Carbonics Entities from any applicable workers' compensation legislation or applicable employee health and safety, training or similar legislation, regulations or rules after the Closing Date.

 

3.28             Acknowledgment Regarding Buyer’s Purchase of the Convertible Debentures .   The Carbonics Entities acknowledges and agrees that the Seller is acting solely in the capacity of an arm’s length party with respect to this Agreement and the transactions contemplated hereby.  The Carbonics Entities further acknowledges that the Seller is not acting as a financial advisor or fiduciary of the Carbonics Entities (or in any similar capacity) with respect to this Agreement and the transactions contemplated hereby and any advice given by the Seller or any of their respective representatives or agents in connection with this Agreement and the transactions contemplated hereby is merely incidental to the Seller’s sale of the LLC Interests.  The Carbonics Entities further represents to the Seller that the Carbonics Entities’ decision to enter into this Agreement has been based solely on the independent evaluation by the Carbonics Entities and its representatives.

 

4.             Warranties and Representations Relating to Carbonics. Carbonics represents and warrants to Seller as follows:

 

4.1             Title to Shares of Buyer .   Carbonics is the record and beneficial owner of all of the outstanding capital stock of Buyer. Carbonics has sole voting power and sole power to issue instructions with respect to voting, sole power of disposition, sole power of exercise or conversion and the sole powers to demand appraisal rights, in each case with respect to all of the Shares of Buyer.

 

4.2             No Liens .   The Shares of Buyer are now, and at all times during the term hereof, will be held by Carbonics, free and clear of all Liens, proxies, voting trusts or agreements, understandings or arrangements or any other encumbrances whatsoever, except for liens to YA Global or to the Seller.

 

4.3             Authorization; Conflict; Valid and Binding Obligation . When issued in accordance herewith, the New Earthshell Debenture will be duly and validly authorized by all requisite corporate action of Carbonics.  Carbonics has full right, power and capacity to execute, deliver and perform its obligations under the New Earthshell Debenture. No governmental license, permit or authorization and no registration or filings with any court, governmental authority or regulatory agency is required in connection with the Carbonics’ execution, delivery and/or performance of the New Earthshell Debenture, other than any filings required by applicable federal and state securities laws. The execution, delivery and performance of the New Earthshell Debenture, the consummation of the transactions herein contemplated and the compliance with the terms of the New Earthshell Debenture by Carbonics will not violate or conflict with any provision of the Articles of Incorporation, as amended or By-laws of the Company, or any agreement, instrument, law or regulation to which Carbonics is a party or by which Carbonics may be bound. The New Earthshell Debenture, upon execution and delivery by Carbonics, will represent the valid and binding obligation of Carbonics enforceable in accordance with its terms.

 

4.4             Capitalization .  The authorized capital stock of the Carbonics consists of 10,000,000,000 shares of Common Stock and 1,000,000 shares of Secires C Preferred Stock, par value $0.001 (“ Preferred Stock ”) of which 2,879,307,216 shares of Common Stock and 921,890 shares of Preferred Stock are issued and outstanding.  All of the outstanding shares of capital stock of Carbonics are validly issued, fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities.  Except as disclosed in Schedule 4.4: (i) none of Carbonics' capital stock is subject to preemptive rights or any other similar rights or any liens or encumbrances suffered or permitted by the Carbonics; (ii) there are no outstanding options, warrants, scrip, rights to subscribe to, calls or


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