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EXHIBIT 10.1
EXECUTION COPY
MEMBERSHIP INTEREST PURCHASE AGREEMENT
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TABLE OF CONTENTS
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ARTICLE 1 PURCHASE AND SALE OF MEMBERSHIP INTERESTS.....................................................1
1.1 Acquisition...................................................................................1
1.2 Assignment of Membership Interests............................................................1
ARTICLE 2 PURCHASE PRICE................................................................................1
2.1 Purchase Price................................................................................1
2.2 Warrants......................................................................................2
2.3 Transfer Taxes................................................................................2
2.4 Purchase Price Adjustments....................................................................2
2.5 Pro Rata Payments.............................................................................4
ARTICLE 3 SELLERS' REPRESENTATIONS AND WARRANTIES.......................................................4
3.1 Organization..................................................................................4
3.2 Power and Authority...........................................................................4
3.3 Authorization; No Breach......................................................................5
3.4 Absence of Undisclosed Liabilities............................................................5
3.5 Capitalization of the Company and Title to Membership Interests...............................6
3.6 Financial Statements..........................................................................6
3.7 No Material Adverse Changes; Absence of Certain Changes or Events.............................6
3.8 Real Property; Personal Property..............................................................8
3.9 Tax Matters..................................................................................10
3.10 Contracts and Commitments....................................................................11
3.11 Litigation; Proceedings......................................................................13
3.12 Brokerage....................................................................................14
3.13 Employees....................................................................................14
3.14 Employee Benefit Plans.......................................................................15
3.15 Compliance with Laws.........................................................................17
3.16 Environmental Matters........................................................................17
3.17 Affiliate Transactions.......................................................................18
3.18 Intellectual Property Rights.................................................................19
3.19 Bank Accounts; Powers of Attorney............................................................19
3.20 Fuel Volume Records..........................................................................19
3.21 Intentionally Omitted........................................................................19
3.22 Intentionally Omitted........................................................................19
3.23 Accuracy of Representations..................................................................19
3.24 Foreign Person...............................................................................19
3.25 Securities Law Compliance....................................................................20
ARTICLE 4 BUYER'S REPRESENTATIONS AND WARRANTIES.......................................................21
4.1 Organization.................................................................................21
4.2 Power and Authority..........................................................................21
4.3 Authorization; No Breach.....................................................................21
4.4 Brokerage....................................................................................21
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4.5 Litigation...................................................................................21
4.6 Buyer's Investment Representation............................................................21
4.7 Buyer's Securities Filings...................................................................22
ARTICLE 5 COVENANTS....................................................................................22
5.1 Pre-Closing Affirmative Covenants of Sellers.................................................22
5.2 Schedules....................................................................................23
5.3 Intentionally Omitted........................................................................23
5.4 Access.......................................................................................23
5.5 Pre-Closing Negative Covenants of Sellers....................................................23
5.6 Lot Split. .................................................................................25
ARTICLE 6 CLOSING CONDITIONS - BUYER...................................................................25
6.1 Buyer's Conditions to Closing................................................................25
6.2 Waiver of Conditions.........................................................................27
ARTICLE 7 CLOSING CONDITIONS - SELLERS.................................................................27
7.1 Conditions to Closing........................................................................27
7.2 Waiver of Conditions.........................................................................29
ARTICLE 8 CLOSING MATTERS..............................................................................29
8.1 The Closing..................................................................................29
8.2 Action to Be Taken at the Closing; Payment of Purchase Price.................................29
8.3 Closing Documents............................................................................29
ARTICLE 9 INDEMNIFICATION; SURVIVAL OF REPRESENTATIONS AND WARRANTIES; RELEASE.........................30
9.1 Indemnification of Buyer and the Company.....................................................30
9.2 Indemnification of Sellers...................................................................32
9.3 Certain Tax Matters..........................................................................32
9.4 Procedure....................................................................................33
9.5 Survival ....................................................................................36
9.6 Exclusive Remedy.............................................................................36
9.7 Indemnification Limitations..................................................................36
9.8 The Sellers' Representative..................................................................37
9.9 Release......................................................................................39
9.10 No Contribution..............................................................................40
ARTICLE 10 TERMINATION..................................................................................40
10.1 Termination..................................................................................40
10.2 Effect of Termination........................................................................40
ARTICLE 11 ADDITIONAL AGREEMENTS........................................................................40
11.1 Press Release and Announcements..............................................................40
11.2 Confidentiality by Buyer.....................................................................41
11.3 Remittances..................................................................................41
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11.4 Cooperation to Obtain Consents...............................................................41
11.5 Tax Matters..................................................................................41
11.6 Employee Matters.............................................................................42
11.7 Further Assurances...........................................................................42
11.8 Arbitration..................................................................................42
11.9 Confidentiality, Tradenames..................................................................44
11.10 SEC Reporting Cooperation....................................................................45
11.11 Legend; Transfer of Member Notes.............................................................45
11.12 No Shop. ".................................................................................46
ARTICLE 12 MISCELLANEOUS................................................................................46
12.1 Amendment and Waiver.........................................................................46
12.2 Notices......................................................................................47
12.3 Assignment...................................................................................47
12.4 Captions.....................................................................................48
12.5 Complete Agreement; Schedules and Exhibits...................................................48
12.6 Governing Law................................................................................48
12.7 Counterparts.................................................................................48
12.8 Third Party Beneficiaries....................................................................48
12.9 Severability.................................................................................48
12.10 Expenses.....................................................................................48
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INDEX OF DEFINITIONS
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OTHER THAN THOSE LIST ON EXHIBIT "A"
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Accounting Firm.................................................................................................3
Acquisition Proposal...........................................................................................46
Action.........................................................................................................43
Agreement.......................................................................................................1
Benefit Plans..................................................................................................15
Business........................................................................................................1
Business Employees.............................................................................................14
Buyer...........................................................................................................1
Buyer Securities................................................................................................2
Closing........................................................................................................28
Closing Balance Sheet...........................................................................................3
Closing Date...................................................................................................29
Company.........................................................................................................1
Company Intellectual Property..................................................................................18
Confidential Information.......................................................................................43
Decision.......................................................................................................43
Effective Time.................................................................................................29
Financial Statements............................................................................................6
Indemnifying Party.............................................................................................33
Insurance Policies.............................................................................................12
Interim Unaudited Statements....................................................................................6
JAMS...........................................................................................................42
Lease...........................................................................................................8
Leases..........................................................................................................8
Loss...........................................................................................................31
Material Contracts.............................................................................................12
Member Notes....................................................................................................2
Membership Interests............................................................................................1
MetLife Note....................................................................................................2
Milestone Date.................................................................................................29
Monthly Unaudited Statements....................................................................................6
Net Tax Benefit................................................................................................35
Net Working Capital.............................................................................................2
Notice.........................................................................................................33
Offset.........................................................................................................31
Offset Notice..................................................................................................31
Pension Plans..................................................................................................15
Permits........................................................................................................17
Personal Property...............................................................................................9
Primary Sellers................................................................................................32
Principals......................................................................................................4
Purchase Price..................................................................................................1
Seller..........................................................................................................1
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Sellers.........................................................................................................1
Sellers' Representative....................................................................................36, 37
Tax Matters....................................................................................................32
Tax Reimbursement Amount.......................................................................................35
To the Best of Sellers' Knowledge...............................................................................4
Transaction Documents..........................................................................................29
Unaudited Statements............................................................................................6
Warrants........................................................................................................2
Welfare Plans..................................................................................................15
Western Milling.................................................................................................2
Western Milling Loan............................................................................................2
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EXECUTION COPY
MEMBERSHIP INTEREST PURCHASE AGREEMENT
THIS MEMBERSHIP INTEREST PURCHASE AGREEMENT (together with the exhibits
and schedules hereto, this "AGREEMENT") is dated as of August 1, 2005 by and
among those persons and entities listed on the attached Schedule 1 (collectively
the "Sellers" or individually the "SELLER" and PACIFIC ETHANOL, INC., a Delaware
corporation ("BUYER"). Unless otherwise defined in this Agreement, capitalized
terms used in this Agreement are defined in EXHIBIT "A".
R E C I T A L S
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A. Sellers own 100% of the equity (the "MEMBERSHIP INTERESTS") of
Phoenix Bio Industries, LLC, a California limited liability Company (the
"COMPANY").
B. The Company is engaged in the business (the "BUSINESS") of
developing and constructing an approximate 25 million gallon per year corn
ethanol plant, providing management services to operate the corn ethanol plant
and such other activities related to the foregoing.
C. Buyer desires to acquire from Sellers, and Sellers desire to sell
and transfer to Buyer, all of the Membership Interests on the terms and subject
to the conditions set forth herein.
A G R E E M E N T
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THEREFORE, in consideration of the foregoing and the mutual agreements
and covenants set forth below, the Parties hereby agree as follows:
ARTICLE 1
PURCHASE AND SALE OF MEMBERSHIP INTERESTS
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1.1 ACQUISITION. Subject to the terms and conditions of this Agreement,
Buyer agrees to purchase, and Sellers agree to sell, convey, assign, transfer
and deliver to Buyer, the Membership Interests, free and clear of all
Encumbrances, on the Closing Date.
1.2 ASSIGNMENT OF MEMBERSHIP INTERESTS. The sale and transfer of the
Membership Interests will be effected by delivery by Sellers to Buyer of an
Assignment of Limited Liability Company Membership Interests in the form
attached hereto as EXHIBIT "B".
ARTICLE 2
PURCHASE PRICE
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2.1 PURCHASE PRICE. The aggregate amount to be paid by the Buyer at the
Closing in consideration for the Membership Interests shall be Forty-Seven
Million Five Hundred Thousand Dollars ($47,500,000.00) (the "PURCHASE PRICE").
Subject to SECTION 2.4(G) of this Agreement, the Purchase Price shall be payable
as follows:
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(a) $39,500,000 shall be payable at the time of the Closing in
the form of (i) the assumption by Buyer or payoff by Buyer of the
remaining balance of the MetLife Loan to the Company in the original
principal amount of $8,000,000 (the "METLIFE NOTE"); (ii) payment in
the form of wire transfer, check or bank draft in the amount of
$39,500,000 reduced by the amount of the MetLife Note assumed by or
paid off from Sellers' proceeds paid at the time of this Closing and
the outstanding balance of the loan made by Western Milling, LLC
("WESTERN MILLING") to the Company with a current principal amount
owing of approximately $1,000,000 (the "WESTERN MILLING LOAN") which
will be paid off from Seller's proceeds paid at the time of this
Closing.
(b) Buyer shall issue an aggregate of $8,000,000 of
convertible subordinated notes to the Sellers (the "MEMBER NOTES") in
the form attached hereto as EXHIBIT "C" which will be secured by a
subordinated security interest in the form of a deed of trust
encumbering the Facility and the ground lease upon which it is located
junior only to one or more deeds of trust securing an aggregate amount
not to exceed $37,500,000.
2.2 WARRANTS. As additional consideration for the acquisition of the
Membership Interests, Buyer shall issue at Closing warrants to the Sellers
("WARRANTS") in the form attached hereto as EXHIBIT "D". The Warrants and the
Member Notes are hereinafter collectively referred to as the "BUYER SECURITIES".
2.3 TRANSFER TAXES. All transfer, registration, stamp, documentary,
recording and similar taxes, if any, that become due and payable as a result of
the consummation of the transactions set forth in this Agreement shall be paid
one-half by the Buyer and one-half by the Sellers.
2.4 PURCHASE PRICE ADJUSTMENTS.
(a) As used herein, the term "NET WORKING CAPITAL" shall mean
the aggregate current assets of the Company minus the aggregate current
liabilities of the Company, all as determined in accordance with
generally accepted accounting principles, consistent with past practice
and all as determined as of the Effective Time and taking into account
such adjustments as customary for a working capital adjustment. Current
liabilities will not include any principal portion of the Met Life loan
or the Western Milling Loan.
(b) The Purchase Price shall be adjusted by the amount of the
Net Working Capital of the Company as of the Effective Time. The
Sellers' Representative and the Buyers shall use commercially
reasonable efforts to mutually agree upon the principles,
specifications and methodologies for determining Net Working Capital
consistent with past practice. In the event that the Parties cannot
mutually agree on the principles, specifications and methodologies for
determining Net Working Capital, on or before 5 business days prior to
the Closing, then the matter shall be submitted to binding arbitration
with a mutually agreed upon national independent certified public
accounting firm.
(c) At least ten (5) business days prior to Closing, Sellers
shall deliver to Buyer a reasonable estimate of Net Working Capital as
of the Effective Time based on a balance sheet as of the last day of
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the most recently ended calendar month prior to the Closing Date and
containing reasonable detail and supporting documents showing the
derivation of such estimate, including a projected balance sheet as of
the Effective Time (the "CLOSING BALANCE Sheet"). The consideration
paid by Buyer to the Sellers at the Closing shall be (x) increased by
the excess, if any, of Net Working Capital (above zero) as of the
Effective Time, or (y) decreased by the shortfall (below zero), if any,
of Net Working Capital as of the Effective Time, in either case as
reasonably agreed to by Buyer and the Sellers' Representative on or
prior to the Closing Date.
(d) Within ninety (90) days after the Closing, Buyer shall
deliver to the Sellers' Representative its determination of the actual
Net Working Capital as of the Effective Time (following the same
principles, specifications and methodologies used to determine the
estimated Net Working Capital as agreed upon pursuant to SECTION
2.3(B)). Each party shall have full access to the financial books and
records pertaining to the Company to confirm or audit the Net Working
Capital computations. Should the Sellers' Representative disagree with
Buyer's determination of Net Working Capital, the Sellers'
Representative shall notify Buyer within thirty (30) days after Buyer's
delivery of its determination of Net Working Capital. If the Sellers'
Representative and Buyer fail to agree within thirty (30) days after
Sellers' Representative's delivery of notice of disagreement on the
amount of Net Working Capital, such disagreement shall be resolved in
accordance with the procedure set forth in SECTION 2.3(F) which shall
be the sole and exclusive remedy for resolving such accounting disputes
relative to the determination of Net Working Capital.
(e) If the actual Net Working Capital as of the Effective Time
(determined pursuant to SECTION 2.3(D)) exceeds the estimated Net
Working Capital as of such time (determined pursuant to SECTION 2.3(C)
hereof), then Buyer shall, within fourteen (14) days pay such
difference in cash to the Sellers' Representative, and the Sellers'
Representative shall distribute the same to the Sellers in proportion
to their ownership interests in the Company. If the actual Net Working
Capital as of the Effective Time (determined pursuant to SECTION
2.3(D)) is less than the estimated Net Working Capital as of such time
(determined pursuant to SECTION 2.3(C) hereof), then the Buyer shall
reduce the difference from the subsequent payment(s) due on the Member
Notes.
(f) In the event that the Sellers' Representative and Buyer
are not able to agree on the actual Net Working Capital as of the
Effective Time within thirty (30) days after the Sellers'
Representative's delivery of notice of disagreement, the Sellers'
Representative and Buyer shall each have the right to require that such
disputed determination be submitted to a national independent certified
public accounting firm as the Sellers' Representative and Buyer may
then mutually agree upon in writing (the "ACCOUNTING FIRM") for
computation or verification in accordance with the provisions of this
Agreement. The Accounting Firm shall review the matters in dispute and
acting as arbitrators shall promptly decide the proper amounts of such
disputed entries (which decision shall also include a final calculation
of the actual Net Working Capital as of the Effective Time). The
submission of the disputed matter to the Accounting Firm shall be the
exclusive remedy for resolving accounting disputes relative to the
determination of Net Working Capital. The Accounting Firm's
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determination shall be binding upon the Sellers, the Sellers'
Representative and Buyer. The Accounting Firm's fees and expenses shall
be borne equally by the Sellers and Buyer.
(g) Any Purchase Price Adjustment required under this SECTION
2.3 shall be made to the cash portion of the Purchase Price which is
payable pursuant to SECTION 2.1 of this Agreement.
2.5 PRO RATA PAYMENTS. All payments due the Sellers under this Article
2 and the other provisions of this Agreement shall be made by the Buyer to the
Sellers according to Schedule 1 attached hereto. Schedule 1 may be adjusted up
to the Closing.
ARTICLE 3
SELLERS' REPRESENTATIONS AND WARRANTIES
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For the purposes of this Agreement, the phrase "TO THE BEST OF SELLERS'
KNOWLEDGE" shall mean (a) as to all the representations and warranties contained
in this ARTICLE 3 other than SECTIONS 3.2, 3,3(A), 3.5(A), 3.5(C) AND 3.25 to
the actual knowledge of Mark S. Wheeler, Kevin Kruse, Ejnar Knudsen and Rick
Eastman (collectively the "PRINCIPALS") and shall be deemed to exist with
respect to a particular matter if a prudent individual would be expected to
discover or otherwise become aware of it after reasonable inquiry; and (b) as to
the representations and warranties contained in SECTIONS 3.2, 3.3(A), 3.5(A),
3.5(C) AND 3.25 of this ARTICLE 3, to the actual knowledge of each Seller as
such representation or warranty relates to such Seller and shall be deemed to
exist with respect to a particular matter if a prudent individual would be
expected to discover or otherwise become aware of it after reasonable inquiry.
Subject to the foregoing and as an inducement to Buyer to enter into this
Agreement, Sellers represent and warrant to Buyer severally as to the
representations and warranties contained in SECTIONS 3.2, 3.3(A), 3.5(A), 3.5(C)
AND 3.25 and each of the Principals represents and warrants as to all other
representations and warranties in this Article 3 that:
3.1 ORGANIZATION. The Company is a limited liability company duly
organized, validly existing and in good standing under the Laws of California.
The Company has no Subsidiaries nor does it own any equity interest in any other
entity. The Company is qualified to do business as a foreign corporation in any
state in which it is doing business and is in good standing in the State of
California. The State of California is the only jurisdiction where the Company's
activities, personnel and properties require such qualification or licensing.
Sellers have provided to Buyer complete and correct copies of the Charter
Documents for the Company as currently in effect.
3.2 POWER AND AUTHORITY. Sellers have full power and authority to own
the Membership Interests, to execute and deliver this Agreement and the
Transaction Documents and to perform their respective obligations hereunder and
thereunder. Except as set forth in SCHEDULE 3.2, the Company has all requisite
power and authority to own and operate the Business as conducted as of the date
hereof, and to own, operate and lease the properties and assets owned, operated
or leased by the Company and used in the Business.
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3.3 AUTHORIZATION; NO BREACH.
(a) The execution, delivery and performance of this Agreement
has been, and the execution, delivery and performance of the
Transaction Documents as of the Closing will have been, duly and
validly authorized by Sellers, and this Agreement constitutes, and each
of the Transaction Documents as of the Closing will constitute, a valid
and binding obligation of Sellers, enforceable against Sellers in
accordance with their respective terms (except as may be limited by
bankruptcy, insolvency, reorganization and other similar laws and
equitable principles relating to or limiting creditors' rights
generally).
(b) The execution, delivery and performance of this Agreement
and the Transaction Documents by Sellers, and the consummation of the
transactions hereunder and thereunder, will not:
(i) violate, conflict with, result in a breach or
constitute a default, or give rise to any right of amendment,
termination, cancellation or acceleration, under (with or
without due notice or lapse of time, or both) the Company's
Charter Documents, or, To the Best of Sellers' Knowledge, any
Law to which Sellers or the Company are subject or, except as
set forth on SCHEDULE 3.3(A), any agreement to which the
Company is party or otherwise bound (including the Material
Contracts);
(ii) except as set forth on SCHEDULE 3.3(B), result
in or give to any person any right of termination or
cancellation in or with respect to any Permit; or
(iii) except as set forth on SCHEDULE 3.3(C), require
or potentially require any authorization, consent or approval
of, or action or filing with, any person, business
organization, entity or any court or other governmental body.
3.4 ABSENCE OF UNDISCLOSED LIABILITIES.
(a) Other than as disclosed on the Company's financial
statement dated June 30th 2005 and updated at Closing on SCHEDULE
3.4(A), the Company does not have any liabilities or obligations of any
nature, whether accrued or absolute, contingent or otherwise, and
whether due or to become due, except (i) liabilities and obligations
under contracts described on the Leases Schedule and the Contracts
Schedule (other than through any breach or default by the Company, (ii)
liabilities and obligations reflected in the Unaudited Statements, and
(iii) liabilities and obligations of the Company which have arisen
after June 30th 2005 in the ordinary course of business, consistent
with past practices (other than through any breach or default by the
Company).
(b) Except as set forth on SCHEDULE 3.4(B), the Company does
not have any Funded Indebtedness as of the date of this Agreement or on
the Closing Date.
3.5 CAPITALIZATION OF THE COMPANY AND TITLE TO MEMBERSHIP INTERESTS.
(a) Sellers are the unconditional and sole legal, beneficial,
record and equitable owners of the Membership Interests, and each has
full power and authority to sell and transfer the Membership Interests
free and clear of all Encumbrances. SCHEDULE 1 lists the name of each
Seller and the percentage of the Membership Interests each Seller owns
of record.
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(b) The Membership Interests constitute all of the issued and
outstanding equity in the Company. All such Membership Interests are
duly authorized, validly issued, fully paid and non-assessable and were
issued in conformity with applicable Laws.
(c) Except as set forth in Schedule 1, there are no
outstanding warrants, options, rights, other securities, agreements,
subscriptions, or other commitments, arrangements or undertakings
pursuant to which Sellers, the Company, or any other person is or may
become obligated to issue, deliver or sell, or cause to be issued,
delivered or sold, any additional membership interests or other
securities of the Company.
3.6 FINANCIAL STATEMENTS. The Company has delivered to Buyer, or, in
the case of the Interim and Monthly Unaudited Statements, will deliver to Buyer
prior to Closing, correct and complete copies of (a) unaudited financial
statements with respect to the Company and the Business prepared by the Company
for the year ended December 31, 2004 and December 31, 2003 (the "UNAUDITED
STATEMENTS"), (b) unaudited statements of income and cash flow for the Company
for the six (6) month period ending June 30, 2004 (the " INTERIM UNAUDITED
STATEMENTS") and each month-end that occurs prior to the Closing Date (the
"Monthly UNAUDITED STATEMENTS"). The Unaudited Statements, the Interim Unaudited
Statements and the Monthly Unaudited Statements are hereinafter collectively
referred to as the "FINANCIAL STATEMENTS". The Financial Statements have been
(and, with respect to the Monthly Unaudited Statements, will be) prepared in
accordance with the books and records of the Company and consistently applied
throughout the periods involved, and fairly present the financial condition and
results of operation of the Company and the Business as of such balance sheet
date or the period then ending, as the case may be. Except as set forth on
SCHEDULE 3.6, each of the Company's accounts receivable arose, and all accounts
receivable that will be outstanding as of the Closing Date shall have arisen,
from bona fide transactions in the ordinary course of business. The reserves for
accounts receivables set forth in the Financial Statements have been established
consistently with the Company's historical accounting practices. SCHEDULE 3.6
includes an accurate list, as of a date not more than five (5) business days
prior to the date hereof, of the Company's accounts receivable, showing amounts
due in 30-day aging categories.
3.7 NO MATERIAL ADVERSE CHANGES; ABSENCE OF CERTAIN CHANGES OR EVENTS.
Since June 30th, 2005, except as set forth in SCHEDULE 3.7 or as contemplated or
permitted hereunder, (i) there has not been any Material Adverse Change, (ii)
the Business has only been operated in the ordinary course, consistent with past
practices, and (iii) there has not been, with respect to the Company, any:
(a) sale, assignment or transfer, other than in the ordinary
course of business and consistent with past practice, of any assets of
the Company;
(b) acquisition by merger, consolidation with, purchase of
substantially all of the assets or capital stock of, or, other than in
the ordinary course of business and consistent with past practice, any
other acquisition of any material assets of, any corporation,
partnership, association or other business organization or division
thereof;
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(c) change in accounting methods or accounting practices by
the Company other than what is required to facilitate the Company's
transition from construction to operating;
(d) termination or, other than in the ordinary course of
business and consistent with past practice, entry into, or amendment or
modification of, any Material Contract, Permit or material transaction
(including, without limitation, any borrowing, capital expenditure,
capital contribution, capital financing or factoring agreement);
(e) increase in salary, bonuses or other compensation payable
or to become payable to, or any advance or loan to any officer or
employee of the Company, except in the ordinary course of business,
consistent with past practice, and the Company has not (i) entered into
any Benefit Plan, employment, severance, or other agreements relating
to compensation or fringe benefits or (ii) adopted or changed any
existing Benefit Plan or Benefit Arrangement;
(f) strike, walkout, labor trouble or, To the Best of Sellers'
Knowledge, any other new or continued labor-related event, development
or condition of any character which has or could materially adversely
affect the Business;
(g) cancellation or waiver of any right material to the
operation of the Business or any cancellation or waiver of any debts or
claims of substantial value or any cancellation or waiver of any debts
or claims against any officer, manager or employee of the Company;
(h) payment, discharge or satisfaction of any material
liability or obligation (whether accrued, absolute, contingent or
otherwise), other than the payment, discharge or satisfaction of
liabilities and obligations under contracts described in the Leases
Schedule and the Contracts Schedule, in accordance with the terms of
such contracts, and other than the payment, discharge or satisfaction,
in the ordinary course of business, of liabilities or obligations shown
or reflected on the Financial Statements or incurred in the ordinary
course of business since June 30th, 2005;
(i) To the Best of Sellers' Knowledge, change or changes in
relations with landlords, suppliers, clients or customers which,
individually or in the aggregate, could reasonably be expected to
result in a Material Adverse Change;
(j) write-offs as uncollectible of any notes or accounts
receivable of the Company or write-downs of the value of any asset or
inventory by the Company other than in immaterial amounts or in the
ordinary course of business consistent with past practice;
(k) creation, incurrence, assumption or guarantee by the
Company of any material obligations or liabilities (whether absolute,
accrued, contingent or otherwise and whether due or to become due),
except in the ordinary course of business, or any creation, incurrence,
assumption or guarantee by the Company of any indebtedness for borrowed
money; or
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(l) agreement by the Company to do any of the foregoing.
3.8 REAL PROPERTY; PERSONAL PROPERTY.
(a) The Leases Schedule, SCHEDULE 3.8(A), lists all oral or
written leases, including the Ground Lease, subleases, licenses,
concession agreements or other use or occupancy agreements pursuant to
which the Company leases to or from any other party any real property,
including all renewals, extensions, modifications or supplements to any
of the foregoing or substitutions for any of the foregoing (each a
"LEASE" and collectively, the "LEASES"). The Leases are in full force
and effect, have not been assigned, modified, supplemented or amended,
and are enforceable by and against the Company and, To the Best of
Sellers' Knowledge, all other parties thereto. Sellers have delivered
to Buyer complete and accurate copies of each of the Leases (including
all amendments and supplements thereto and, To the Best of Sellers'
Knowledge, all material correspondence related thereto). Copies of the
Ground Lease are attached to SCHEDULE 3.8(A) hereto. Except as set
forth on SCHEDULE 3.8(A), (i) none of Sellers, nor the Company has
received any notice that the Company is in default under, or not in
compliance with any material provision of, any Lease, that the Company
may be subject to any special assessments or that there may be any
material changes in property Tax or land use law affecting any such
Leases, (ii) none of the Sellers or the Company has delivered any
notice to another party alleging any default under, or failure to
comply with any material provision of any Lease, and (iii) no event has
occurred that, with notice, the passage of time or both would
constitute a material default by the Company under, or failure of the
Company to comply with a material provision of, any of the Leases, or,
To the Best of Sellers' Knowledge, otherwise give any party a right of
termination or material modification thereof.
(b) The Company's interests under the Leases are held free and
clear of all Encumbrances other than as set forth on SCHEDULE 3.8(B).
There are no mortgages, security interests or liens granted with
respect to the Ground Lease other than as set forth on SCHEDULE 3.8(B).
The Company does not own any fee interest in any real property. The
Company has no leasehold rights in any other real property.
(i) None of Sellers nor the Company has received
written notice of any threatened condemnation proceedings,
lawsuits or administrative actions relating to any of the real
property used in the Business, or any other matters which do
and may have a material adverse effect on the current use or
occupancy thereof, and there are no pending or, To the Best of
Sellers' Knowledge, there are no pending or threatened
condemnation proceedings, lawsuits or administrative actions
relating to any of the real property used in the Business or
any other matters which do or may have a material adverse
effect on the current use and occupancy thereof.
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(ii) All facilities, buildings, improvements and
other structures located on the real property used in the
Business and all present uses and operations of such real
property and the structures by the Company, comply in all
material respects To the Best of Sellers' Knowledge with all
applicable zoning, land-use, building, fire, labor, safety,
subdivision and other governmental requirements and all deed
or other title covenants or restrictions applicable thereto.
None of Sellers nor the Company has received any notice that
any of the leased real property or any of the structures used
in the Business, or the use, occupancy or operation thereof by
the Company, violate any governmental requirements or deed or
other title, covenants or restrictions, except for any
violations which do not have a material adverse effect.
(iii) By Closing, the Company will have obtained all
material approvals of governmental authorities (including
certificates of use and occupancy, licenses and permits)
required in connection with the construction, ownership, use,
occupation and operation of the leased real property and the
structures thereon used in the Business, and all equipment
owned or used by the Company. To the Best of Sellers'
Knowledge, none of the leased real property or any of the
structures thereon used in the Business are dependent upon or
benefit from any "non-conforming use" or similar zoning
classification.
(iv) Other than in the ordinary course of business or
as may be provided in any Lease or Material Contract, there
are no parties other than the Company in possession of any of
the leased real property or any portion thereof, and, except
as may be provided in any Lease or Material Contract or
otherwise in the ordinary course of business, there are no
leases, subleases, licenses, concessions or other agreements,
written or oral, granting to any party or parties the right of
use or occupancy of any of the leased real property or any
portion thereof.
(v) To the Best of the Sellers' Knowledge, all
structural, mechanical and other physical systems related to
the leased real property are in operating condition and repair
at Closing, reasonable wear and tear excepted, in all material
respects.
(c) Attached hereto as SCHEDULE 3.8(C) is a complete and
accurate list of all furniture, equipment, leasehold improvements,
motor vehicles and all other tangible personal property owned or leased
by the Company that the Company has reflected in its books and records
in accordance with generally accepted accounting principles (the
"PERSONAL PROPERTY").
(d) The Company has good title to its Personal Property, free
and clear of any Encumbrances except as set forth on SCHEDULE 3.8(D).
(e) The Personal Property has been maintained, repaired and
replaced in the ordinary course of business consistent with past
practices, and is in operating order except for ordinary wear and tear.
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The Company owns or leases all assets and properties that are used in
or necessary to the operation of the Business it is currently
conducted.
(f) At Closing, the Company's inventory consists of items of a
quality and quantity usable and salable in the ordinary course of
business.
3.9 TAX MATTERS. Except as set forth on SCHEDULE 3.9:
(a) The Company has filed (or had filed on its behalf), all
Tax Returns required to have been filed by it. The Company has duly
paid (or had paid on its behalf) all Taxes required to have been paid
by it. With respect to the Company, no claim has ever been made by a
governmental authority in a jurisdiction where the Company does not
file Tax Returns that the Company is or may be subject to taxation by
that jurisdiction. The Company has not requested or obtained any
extension of time within which to file any Tax Return, which Tax Return
has not since been filed. There are no Liens on any of the assets of
the Company that arose in connection with any failure (or alleged
failure) to pay any Tax.
(b) The Company has complied in all material respects with all
applicable laws, rules and regulations relating to withholding Taxes,
and has, within the time and manner prescribed by law, withheld and
paid, when due (or if withheld but not yet due, have made adequate