STOCK PURCHASE AGREEMENT

 

This STOCK PURCHASE AGREEMENT (this “ Agreement ”) is dated as of September 23, 2009, by and among Clean Energy , a California corporation (the “ Buyer ”), BAF Technologies, Inc. (a/k/a Bachman NGV and Bachman AFV), a Kentucky corporation (the “ Company ”), and Stephen Bachman, Teresa Bachman, John Bacon and William Calvert (collectively, the “ Sellers ”).

 

RECITALS

 

A.             Sellers are the legal and beneficial owners of all the outstanding shares of capital stock of the Company (the “ Stock ”).

 

B.             Buyer wishes to acquire the Company by purchasing all of the Stock from Sellers, and Sellers wish to sell the Stock to Buyer, subject to the terms and conditions set forth herein.

 

C.             Unless otherwise specified, definitions of all capitalized terms are set forth in Exhibit A attached hereto.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter set forth, the parties agree as follows:

 

1.              PURCHASE AND SALE OF THE STOCK .

 

1.1.     Sale of Stock; Base Purchase Price .  Subject to the terms and conditions set forth herein, Sellers hereby agree to sell to Buyer, and Buyer hereby agrees to purchase from Sellers, the Stock free and clear of all Encumbrances for an aggregate base purchase price of eight million three hundred thousand dollars ($8,300,000) (the “ Base Purchase Price ”), subject to the adjustments set forth in Section 1.5, plus such additional amounts as may become due under Section 1.4 below.  The parties acknowledge that the Base Purchase Price shall be comprised of the following components:

 

1.1.1.           Stock .  $8,200,000 of the Base Purchase Price shall be in consideration for the conveyance of the Stock to Buyer.

 

1.1.2.           Noncompetition Covenants .  The remaining $100,000 of the Base Purchase Price shall be consideration for the Sellers’ agreement to abide by the Noncompetition Covenants, allocated as follows:

 

Party		Amount
Stephen Bachman		$	37,500
Teresa Bachman		$	37,500
John Bacon		$	12,500
William Calvert		$	12,500

 

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Any additional consideration pursuant to Section 1.4 shall be allocated to the Stock and not to the Noncompetition Covenants.  Any adjustments pursuant to Section 1.5 shall reduce the foregoing amounts in Section 1.1.1 and 1.1.2 proportionately.

 

1.2.     Closing .  The closing of the purchase and sale contemplated by this Agreement (the “ Closing ”) shall take place at the offices of Virtual Law Partners LLP, 246 Texas Street, San Francisco, CA 94107, on October 1, 2009 at 2:00 p.m. local time, or at such other place or at such other date and time as Sellers and Buyer may mutually agree (the “ Closing Date ”).

 

1.3.     Delivery; Payment .  At the Closing:

 

1.3.1.          Sellers shall deliver to Buyer the certificates representing the Stock, duly endorsed in blank or accompanied by a stock power duly executed in blank;

 

1.3.2.          Buyer shall pay the Base Purchase Price, as adjusted downward according to Section 1.5 (the “ Net Base Purchase Price ”), by wire transfers of immediately available funds in the aggregate to the respective accounts of Sellers in proportion to the number of shares of Stock owned by them immediately prior to the Closing as set forth on Schedule 2.4 .  Such funds shall represent the entire payment due from Buyer at the Closing to the Sellers in consideration of their Stock and the Noncompetition Covenants, and transfer of such amount (and the amounts referred to in Sections 1.3.2 through 1.3.5) shall discharge Buyer’s obligation with respect to payments due at the Closing to each Seller; the Net Base Purchase Price shall be allocated among the Sellers in proportion to the number of shares of Stock owned by them immediately prior to the Closing as set forth on Schedule 2.4 ;

 

1.3.3.          Buyer shall wire the Escrow Amount to the Escrow Agent for deposit and disbursement from the escrow fund in accordance with the terms of the Escrow Agreement;

 

1.3.4.          Buyer shall pay the Buyer Loan Payoff Amount by wire transfer of immediately available funds to Clean Energy Finance, LLC, and all rights, title and interest arising under the Buyer Loan shall be cancelled, released, extinguished and of no further force or effect.  At the Closing, Buyer shall cause Clean Energy Finance, LLC to deliver to the Company the promissory note representing the Buyer Loan for cancellation by the Company.  Notwithstanding the foregoing, Buyer hereby acknowledges and agrees that it shall cause Clean Energy Finance, LLC to cancel, release and extinguish the Buyer Loan effective upon payment of the Buyer Loan Payoff Amount regardless of whether the promissory note representing the Buyer Loan is delivered to and cancelled by the Company.  Promptly following the Closing, Buyer shall cause Clean Energy

 

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Finance, LLC to release and extinguish any and all liens or security interests of any kind covering any assets of the Company granted in connection with the Buyer Loan; and

 

1.3.5.          Buyer shall pay in full all (i) outstanding principal and accrued interest under the debt instruments listed on Schedule 1.3.5 to the holders thereof (each a “ Debt Holder ”), and (ii) the Company’s obligations to its Affiliates (each a “ Payee ”) outstanding as of the date of this Agreement related to the employee 401(k) plan, health insurance, dental insurance, disability insurance and American Express business expenses incurred by Company employees for Company-approved items, each in the amounts listed on Schedule 1.3.5 , plus an additional total amount incurred by the Company (a) from the date of this Agreement through the October 31, 2009 for health, disability and dental insurance and (b) from the date of this Agreement through the Closing Date for all other such matters, each not to exceed the monthly amounts described on Schedule 1.3.5 (collectively, the “ Bachman Related Matters ”) (the items described in clauses (i) and (ii) collectively, the “ Other Indebtedness ”).  Attached within Schedule 1.3.5 from each such Debt Holder and Payee is a payoff letter (in a form reasonably satisfactory to Buyer) addressed to the Company reflecting the total unpaid amount (including any outstanding principal and accrued interest) of such Other Indebtedness as of May 31, 2009 (with a per diem charge) and including such Debt Holder’s or Payee’s wire instructions.

 

1.3.6.          Buyer shall cause the Company to pay $80,000 toward the Company’s and Sellers’ legal and accounting fees at Closing.

 

Buyer, Sellers, and Company shall also deliver to each other such other documents and instruments required to be delivered by such parties hereunder.

 

1.4.     Additional Consideration .  In addition to the Base Purchase Price, as additional cash consideration for the transfer of the Stock by Sellers to Buyer, Buyer will pay to Sellers after the Closing Date, if earned under the terms described below, an amount not to exceed a total of twenty-two million dollars ($22,000,000) (the “ Additional Consideration ”), or eleven million dollars ($11,000,000) per year for each of the calendar years 2010 (“ Earn Out Year 2010 ”) and 2011 (“ Earn Out Year 2011 ” and, together with Earn Out Year 2010, the “ Earn Out Years ”).  Each Earn Out Year shall consist of a period of twelve calendar months beginning on January 1 and ending on December 31.  The amount of Additional Consideration actually earned in any Earn Out Year (the “ Contingent Payments ”) shall, in the case of Earn Out Year 2010, be the amounts earned pursuant to Section 1.4.1 and, in the case of Earn Out Year 2011, the amounts earned pursuant to Sections 1.4.2.

 

1.4.1.           Earn Out Year 2010; Gross Profit Targets .  Buyer shall pay to Sellers an amount equal to the product of (i) the Company’s Gross Profit in Earn Out Year 2010 and (ii) the percentage multiplier set forth in the right column below opposite the largest total number of the Company’s Gross Profit in the left

 

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column below that is achieved in Earn Out Year 2010; provided that the amount of Additional Consideration that may be earned by Sellers under this Section 1.4.1 shall not exceed eleven million dollars ($11,000,000).  For the avoidance of doubt, it is noted that the percentage multipliers set forth below are not to be applied incrementally in calculating any amounts earned under this Section 1.4.1.  Thus, for example, if the Company were to earn Gross Profit of fourteen million two hundred thousand dollars ($14,200,000) in Earn Out Year 2010, Buyer would pay the Sellers two million nine hundred eighty two thousand dollars $2,982,000 (i.e., $14,200,000 x 21%) in Additional Consideration under this Section 1.4.1.

 

2010 Gross Profit Targets		Percentage Multiplier
$0 to $7,999,999		0%
$8,000,000 to $9,499,999		1%
$9,500,000 to $10,999,999		6%
$11,000,000 to $12,499,999		11%
$12,500,000 to $13,999,999		16%
$14,000,000 to $15,499,999		21%
$15,500,000 or more		26%

 

If the Company’s Gross Profit does not equal or exceed eight million dollars ($8,000,000) in Earn Out Year 2010 then the amount earned by Sellers under this Section 1.4.1 shall be zero.

 

1.4.2.           Earn Out Year 2011; Gross Profit Targets .  In addition to any payment under Section 1.4.1, Buyer shall also pay to Sellers an amount equal to the product of (i) the Company’s Gross Profit in Earn Out Year 2011 and (ii) the percentage multiplier set forth in the right column below opposite the largest total number of the Company’s Gross Profit in the left column below that is achieved in Earn Out Year 2011; provided that the amount of Additional Consideration that may be earned by Sellers under this Section 1.4.2 shall not exceed eleven million dollars ($11,000,000).  For the avoidance of doubt, it is noted that the percentage multipliers set forth below are not to be applied incrementally in calculating any amounts earned under this Section 1.4.2.  Thus, for example, if the Company were to earn Gross Profit of fifteen million seven hundred thousand dollars ($15,700,000) in Earn Out Year 2011, Buyer would pay Sellers three million two hundred ninety seven thousand dollars $3,297,000 (i.e., $15,700,000 x 21%) in Additional Consideration under this Section 1.4.2.

 

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2011 Gross Profit Targets		Percentage Multiplier
$0 to $8,499,999		0%
$8,500,000 to $9,999,999		1%
$10,000,000 to $11,499,999		6%
$11,500,000, to $12,999,999		11%
$13,000,000 to $15,499,999		16%
$15,500,000 or more		21%

 

If the Company’s Gross Profit does not equal or exceed eight million five hundred thousand dollars ($8,500,000) in Earn Out Year 2011, then the amount earned by Sellers under this Section 1.4.2 shall be zero.

 

1.5.     Closing Date Base Purchase Price Adjustments .  The Base Purchase Price payable at the Closing shall be adjusted downward by an amount equal to the sum of (i) all Indebtedness (other than the Bachman Related Matters, the amounts payable by the Company pursuant to Section 1.3.6, and any accounts payable to third parties who are not Affiliates of the Company and which were incurred in the ordinary course of business and consistent with past customary practices), plus (ii) the Escrow Amount.

 

1.6.     Procedures for Payment of Additional Consideration .

 

1.6.1.           Annual Reports .  Not later than sixty (60) days following the end of each Earn Out Year, Buyer shall deliver to Sellers a written report (the “ Contingent Payment Report ”) setting forth the amount of Contingent Payments due to Sellers under Section 1.4.  For purposes of evaluating the Contingent Payment Report and any calculation of the Company’s Gross Profits by Buyer, the Sellers (and their accountants) shall have the right to inspect the books and records of the Company, Buyer and any of their Affiliates and to review and audit the work papers of the Company, Buyer and any of their Affiliates utilized in preparing or related to the Contingent Payment Report or calculating the Company’s Gross Profits.  The Contingent Payment Report shall be binding upon Sellers unless the Shareholder Representative presents to Buyer, within thirty (30) business days (to be extended if any information reasonably requested is not made available by Buyer to Sellers) (such period, the “ Dispute Period ”) after delivery to Sellers of the Contingent Payment Report, written notice of disagreement (the “ Contingent Payment Report Dispute Notice ”) specifying in reasonable detail the nature and extent of the disagreement.  Any such disagreement that is not settled voluntarily by the parties shall be decided in accordance with the dispute resolution provisions set forth in Section 1.6.2.

 

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1.6.2.           Dispute Resolution .  If Buyer and the Sellers are unable to reach a resolution within thirty (30) days after delivery of the Contingent Payment Report Dispute Notice, then Buyer and the Shareholder Representative shall submit their respective determinations and calculations and the items remaining in dispute for resolution to PricewaterhouseCoopers (each of the Buyer and Sellers to certify to the other that such accounting firm has not performed any work for any of them within the preceding 24 months) or another independent accounting firm of international reputation mutually acceptable to Buyer and the Shareholder Representative (the “ Contingent Payment Independent Accounting Firm ”).  The parties shall cause the Contingent Payment Independent Accounting Firm to submit a report to Buyer and the Sellers with a determination regarding the remaining disputed items, within thirty (30) days after submission of the matter, and such report shall be final, binding and conclusive on Buyer and the Sellers.  Buyer shall pay to the Sellers the amount, if any, set forth in such report within thirty (30) days after the date of such report.  The fees, costs and expenses of the Contingent Payment Independent Accounting Firm shall be paid by Buyer and the Sellers in the same proportion that the aggregate amount of such remaining disputed items so submitted to the Contingent Payment Independent Accounting Firm that is unsuccessfully disputed or asserted by each such party as finally determined by the Contingent Payment Independent Accounting Firm bears to the total amount of such remaining disputed items.

 

1.6.3.           Timing of Payment .  If the Shareholder Representative does not provide a Contingent Payment Report Dispute Notice within the Dispute Period, then the amount of the Contingent Payments set forth in such Contingent Payment Report shall be paid within thirty (30) days after delivery of such Contingent Payment Report.  If Sellers dispute the amounts set forth in the Contingent Payment Report, and if the Shareholder Representative provides the required Contingent Payment Report Dispute Notice to Buyer within the Dispute Period, then (i) the amount of any undisputed Contingent Payments set forth in such Contingent Payment Report shall be paid within thirty (30) days after delivery of such Contingent Payment Report, and (ii) any disputed Contingent Payments set forth in such Contingent Payment Report or otherwise shall be withheld until resolution of such dispute in accordance with Section 1.6.2.

 

1.6.4.           Method of Payment .  Any net aggregate Contingent Payments owed by Buyer to Sellers as determined in accordance with Sections 1.4 and 1.6 shall be divided among the various Sellers in proportion to the number of shares of Stock owned by each of them immediately prior to the Closing.  All Contingent Payments owed by Buyer to Sellers shall be paid either by wire transfers of immediately available funds to the respective accounts of Sellers or by check drawn on an account of Buyer and delivered to Sellers either in person or at the latest address furnished to Buyer by Sellers for that purpose.  Buyer shall have the right to set off any Losses or other amounts that a Seller owes to Buyer pursuant to the indemnification provisions of Article 11 or any other provision of this Agreement or any Related Agreement, against any Contingent Payments to be

 

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paid to such Seller.  Any net payments owed by Sellers to Buyer shall be paid by wire transfers of immediately available funds to the account of Buyer or by checks drawn on accounts of Sellers and delivered to Buyer either in person or at the latest address furnished to Sellers by Buyer for that purpose.  Any Contingent Payments not paid when due under this Agreement shall bear interest at the rate of eight percent (8%) per annum from the date when any amount determined to be due pursuant to the dispute resolution provisions of this Agreement shall be deemed due, computed retroactively to the original date when such Contingent Payment should have been paid.

 

1.6.5.           Other Amounts Owed to Buyer .  Subject to the limitations set forth in Article 11 hereof, nothing herein shall be construed as limiting the liability of Sellers under this Agreement or the Related Agreements to the amount of the Contingent Payments potentially earned under Section 1.4, nor shall that amount be considered as liquidated damages for any breach of this Agreement or the Related Agreements.

 

1.7.     Excluded Liabilities .  Notwithstanding the purchase of the Stock or any other terms and conditions of this Agreement, Buyer assumes no liability for and after the Closing, and neither Buyer nor the Company shall have any liability for and Sellers shall assume or retain as the case may be all liability for, the Excluded Liabilities.

 

2.              REPRESENTATIONS AND WARRANTIES OF SELLERS AND THE COMPANY REGARDING THE COMPANY AND RELATED MATTERS .

 

As a material inducement for Buyer to enter into this Agreement, the Company and each Seller severally (in proportion to his or her ownership of the Stock) hereby represents and warrants to Buyer that each of the statements in this Article 2 is complete and correct as of the date hereof, except as expressly set forth in the Disclosure Schedule attached hereto, specifying by number the representation qualified, and will be true and correct as of the Closing, except to the extent so set forth in the Disclosure Schedule or in a written certificate delivered to the Buyer at the Closing:

 

2.1.     Organization, Good Standing and Qualification .  The Company is duly organized, validly existing and in good standing under the laws of the State of Kentucky and has all requisite power and authority, and holds all governmental licenses, permits, registrations and other approvals required under applicable law, to own and hold under lease its property and to carry on its business as now conducted and as proposed to be conducted.  The Company has no interests, direct or indirect, in any partnership, joint venture, corporation or other business entity, other than the holdings set forth in Schedule 2.1 hereto and passive investments in traded securities.  The Company has no Subsidiaries.  The copies of the Company’s Organizational Documents, which have been previously delivered to Buyer, are complete and correct.  Except as set forth in Schedule 2.1 , the Company is duly qualified to do business and in good standing in each jurisdiction where the nature of its properties or the conduct of its business requires it to be so qualified to do business.

 

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2.2.     Authorization .  All action on the part of the Company necessary for the authorization, execution and delivery of this Agreement and the Related Agreements, and the performance of all obligations of the Company hereunder and thereunder, has been taken or will be taken prior to the Closing, and such authorization, execution and delivery does not require notice to, or the consent or approval of, any governmental or other regulatory authority or other Person.  This Agreement and those Related Agreements to which the Company is a party have been duly executed and delivered by the Company and are legal, valid and binding obligations of the Company enforceable against the Company in accordance with their terms, subject to the effect of any applicable bankruptcy, reorganization, insolvency, moratorium or similar laws affecting creditors’ rights generally and subject to the effect of general principles of equity, including, without limitation, concepts of materiality, reasonableness, good faith and the possible unavailability of specific performance or injunctive relief, regardless of whether considered in a proceeding in equity or at law.

 

2.3.     Absence of Required Consents; No Conflict .  No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any court, administrative agency or other governmental authority on the part of the Company or any Seller is required in connection with the execution and delivery by the Company or any Seller of this Agreement or the Related Agreements or the consummation of the Transactions.  Except as set forth in Schedule 2.3 , the Company is not in violation or default (i) of any provision of its Organizational Documents, or (ii) in any material respect of any instrument, judgment, order, writ, decree or contract to which it is a party or by which it is bound, or of any provision of any federal or state statute, rule or regulation applicable to the Company.  Except as set forth on Schedule 2.3 , the execution, delivery and performance of the Agreement and the Related Agreements and the consummation of the Transactions will not (i) result in any such violation, (ii) modify, breach, be in conflict with or constitute, with or without the passage of time and/or giving of notice, either a default under any such provision, instrument, judgment, order, writ, decree or contract, or (iii) result in the creation or imposition of (or the obligation to create or impose) any Encumbrance upon any material assets of the Company or the suspension, revocation, impairment, forfeiture or nonrenewal of any material permit, license, authorization or approval applicable to the Company, its business or operations or any of its assets or properties.

 

2.4.     Capitalization .  The authorized capital stock of the Company consists solely of two thousand five hundred (2,500) shares of Common Stock, of which one thousand (1,000) shares are issued and outstanding.  The Company does not have any outstanding option, warrant, security, subscription, rights agreement or other commitment which either (i) obligates the Company to issue, sell or transfer any shares of the capital stock or other equity interest of the Company or any successor-in-interest, except for any conversion rights of Clean Energy Finance, LLC pursuant to the Buyer Loan, (ii) obligates the Company to repurchase, redeem or otherwise acquire any outstanding shares of the capital stock or other equity interest of the Company, or (iii) may be the basis for a claim by any Person that such Person has an interest (contingent or otherwise) in the equity of the Company or any successor-in-interest, except for any conversion rights of Clean

 

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Energy Finance, LLC pursuant to the Buyer Loan.  All of the Stock is duly and validly issued, fully paid, non-assessable and not subject to any preemptive rights, rights of first refusal, or any similar rights.  All issued and outstanding shares of capital stock of Company are owned beneficially and of record by Sellers in such amounts as shown in Schedule 2.4 hereto and are free and clear of all Encumbrances and limitations on the exercise of rights.  All of the issued and outstanding shares of the Company were issued in compliance with all applicable federal and state securities laws or application exemptions thereunder.

 

2.5.     Corporate Books .  The corporate minute books and stock books of the Company are complete and correct, the meetings of directors and shareholders referred to therein were duly called and duly held, and the signatures appearing on all documents contained therein are the true signatures of the persons purporting to have signed the same.  Copies of the contents of such books, which have been previously delivered to Buyer, are complete and correct as of the date hereof.  The accounting books and records of the Company accurately reflect its transactions and correctly account for all receipts, disbursements and expenditures, other than with respect to the completeness of the Company’s financial records beginning with the period beginning July 1, 2009 and thereafter.

 

2.6.     Financial Statements; No Projections .  The Financial Statements, correct and complete copies of which are attached within Schedule 2.6 : (i) present fairly in all material respects the financial position of the Company at such dates and the results of the operations and cash flows of the Company for the periods covered therein, utilizing the Accounting Practices; (ii) have been prepared in accordance with the Accounting Practices applied consistently during such periods and with respect to the prior periods included in Schedule 2.6 ( provided , however , that the Adjusted Balance Sheet is subject to year-end adjustments consistent with past practices (which will not be material in the aggregate) and does not contain all of the footnotes required by GAAP); (iii) are in accordance with the Company’s books and records; and (iv) contain and reflect all necessary adjustments for a fair presentation of the results of operations and financial condition of the Company for the periods and as of the dates shown thereon.  The reserves established on the Adjusted Balance Sheet are fully adequate for the purposes thereof under the Accounting Practices and any estimates contained therein regarding liabilities of the Company represent a reasoned, good faith judgment based on all known facts, and no other reserves known to Sellers are required or appropriate.  Sellers hereby disclaim all financial projections and forecasts of future operations delivered by the Company or Sellers to, or otherwise obtained by, Buyer. In addition, Buyer acknowledges that the Company has incurred substantial research and development expenditures in the past and that all such expenditures have been adjusted downward on the Adjusted Balance Sheet.

 

2.7.     Accounts Receivable .

 

2.7.1.          Except as disclosed in Schedule 2.7 , the accounts receivable reflected on the Adjusted Balance Sheet arose from transactions in the ordinary course of

 

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business, and the goods and services involved have been sold and delivered to the account obligor, and no further goods or services are required to be provided in order to complete the sales and to entitle the Company or their assignee to collect the accounts receivable in full, other than with respect to orders in process and Warranty Claims in the ordinary course of business not in excess of the estimated Warranty Reserve reflected on the Adjusted Balance Sheet with respect to sales through the date of the Adjusted Balance Sheet.  No such account has been assigned or pledged to any other person, firm or corporation, other than to secure the Buyer Loan (and Bachman Auto Group, Inc., which will be released at Closing), and no defense or setoff to any such account has been asserted by the account obligor or, to the knowledge of any Seller, exists.

 

2.7.2.           The gross proceeds from collections of such accounts receivable as of the date of the Adjusted Balance Sheet during the one year period following the date of the Adjusted Balance Sheet will not be less than the amounts thereof shown on the Adjusted Balance Sheet, minus the reserves included in the Adjusted Balance Sheet.  Collections of accounts receivable after the date of the Adjusted Balance Sheet shall be applied to the oldest accounts receivable included in the Adjusted Balance Sheet.  Except as disclosed in Schedule 2.7 , since the date of the Financial Statements, the Company has not written off any accounts receivable except in accordance with past practices, nor changed the basis of calculation of any bad debt reserve.

 

2.8.            Undisclosed Liabilities .  Except as set forth on Schedule 2.8 , the Company does not have any obligations, Indebtedness or Liabilities (including without limitation Liabilities to current and former employees, including without limitation such Liabilities arising out of any benefit plan, health plan, dental plan, long or short term disability plan, life insurance plan, or other similar plan or policy of the Company), contingent, fixed or otherwise and whether or not such Liabilities would ordinarily be required under GAAP to be accrued on a balance sheet or referred to in a footnote, other than: (i) those disclosed in the Financial Statements attached within Schedule 2.6 or otherwise disclosed in writing to the Buyer on or prior to the date hereof (including on any Schedule to this Agreement), (ii) obligations, Indebtedness or Liabilities incurred in the ordinary course of business consistent with past practices since the date of the Adjusted Balance Sheet and (iii) the Bachman Related Matters.

 

2.9.            Litigation and Claims .  Except as set forth on Schedule 2.9 : (i) there is not pending or currently threatened, and within the last three (3) years there has not been, any action, suit, arbitration, proceeding or investigation against or affecting the Company or its properties other than Warranty Claims (the aggregate amount of which for 2007, 2008 and through the date of the Adjusted Balance Sheet are disclosed on Schedule 2.9 ), or that otherwise questions the validity of this Agreement or the Related Agreements, the right of the Company to enter into this Agreement or the Related Agreements, or to consummate the Transactions; (ii) there is not pending or currently threatened any investigation or other proceeding (formal or informal) or third party claim, including without limitation claims by customers or suppliers, or claims by the U.S. or any state

 

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government or branch or instrumentality thereof, whether or not covered by insurance other than Warranty Claims; and (iii) the Company does not know, or have reasonable grounds to know, of any reasonable basis for any such action, suit, arbitration, litigation, proceeding (formal or informal), investigation, or third party claim, the results of which could reasonably be expected to have a Material Adverse Effect (after any insurance reimbursement).  The Company is not a party or subject to, or in default with respect to, the provisions of any order, writ, injunction, judgment or decree of any court or other governmental or regulatory authority.  There is no action, suit, proceeding or investigation by the Company currently pending or that the Company intends to initiate other than collection actions in the ordinary course of business.

 

2.10.      Changes Since May 31, 2009 .  Since May 31, 2009 and except as set forth in Schedule 2.10 , the Company has conducted business in the ordinary course consistent with past practices and there has not been:

 

2.10.1.                                              any Material Adverse Effect (whether or not covered by insurance), including without limitation (i) any adverse change in the Company’s relationship with AT&T, (ii) any material adverse change in the Company’s relationships with any of its top ten vendors or suppliers, (iii) any material adverse change in or related to any permit necessary for the Company to operate its business as presently conducted, or (iv) any material adverse claims, complaints or performance problems related to any vehicle worked on or serviced by the Company;

 

2.10.2.                                              any increase in the salaries or other compensation payable or to become payable to, or any advance (excluding advances for ordinary business expenses) or loan to, any officer, director, employee or shareholder of the Company (except normal annual merit or cost of living increases made in the ordinary course of business and consistent with past practices), or any increase in, or any addition to, other benefits (including, without limitation, any bonus, profit sharing, pension or other plan) to which any of the Company’s officers, directors, employees or shareholders may be entitled, or any payments to any pension, retirement, profit sharing, bonus or similar plan except payments in the ordinary course of business and consistent with past practices made pursuant to the employee benefit plans described in Section 2.23 of the Disclosure Schedule, or any other payment of any kind to or on behalf of any such officer, director, employee or shareholder of the Company, other than payment of base compensation, bonuses and reimbursement for reasonable business expenses in the ordinary course of business;

 

2.10.3.                                              any transaction, contract or arrangement with a Related Party involving the Company as a party in interest, as required under an existing agreement or arrangement the terms of which are described in detail on Schedule 2.10.3 other than the Bachman Related Matters;

 

2.10.4.                                              any issuance or sale by the Company of shares of its capital stock or other securities of any kind (including securities exercisable for, or convertible into,

 

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shares of the Company’s capital stock); any acquisition by the Company, directly or indirectly, by redemption or otherwise, of any such capital stock; any reclassification or split-up any such capital stock, any declaration or payment of any dividends thereon in cash, securities or other property or any other distribution with respect thereto, or any grant or entry into any options, warrants, calls or commitments of any kind with respect thereto;

 

2.10.5.                                              any change with respect to the Company’s management or supervisory personnel;

 

2.10.6.                                              any failure to maintain in full force and effect all policies of insurance with respect to the Company now in effect or to give all material notices and present all material claims under all such policies in a timely fashion;

 

2.10.7.                                              any sale, disposition, mortgage, pledge or other Encumbrance of any property or assets of the Company having a value in excess of ten thousand dollars ($10,000) individually or twenty-five thousand dollars ($25,000) in the aggregate, except for sales of the Company’s products and services in the ordinary course of business and consistent with past practices;

 

2.10.8.              by the Company, (i) the incurring of any Indebtedness or agreement to incur any Indebtedness, or the incurring, assumption, or guarantee, of any obligation or liability (absolute or contingent), which (a) was not incurred in the ordinary course of business consistent with past practices, or (b) together with all debts of the Company, incurred since May 31, 2009 that were incurred not in the ordinary course of business, in the aggregate exceeds twenty-five thousand dollars ($25,000) in value; or (ii) the payment, discharge or satisfaction of any claim, liability or obligation (absolute, accrued, contingent or otherwise), other than such payment, discharge or satisfaction in the ordinary course of business consistent with past practices;

 

2.10.9.              any sale, lease, transfer, or assignment of any assets or properties of the Company, tangible or intangible, outside the ordinary course of business consistent with past practices;

 

2.10.10.                                        any cash disbursements of any nature in excess of twenty-five thousand dollars ($25,000), or commitments, including commitments for capital expenditures, in excess of twenty-five thousand dollars ($25,000), except in the ordinary course of business consistent with past practices;

 

2.10.11.                                        any amendment of the Company’s Organizational Documents or any change in its authorized or issued capital stock;

 

2.10.12.                                        entry by the Company into, or amendment, termination or failure to renew by the Company of, any material transaction, contract or commitment, except for this Agreement and the Related Agreements and the Transactions;

 

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2.10.13.                                        any failure by the Company to operate in compliance with all applicable laws and in a responsible, professional manner;

 

2.10.14.                                        any conduct of the business of the Company not in the ordinary and usual course consistent with past practices;

 

2.10.15.                                        any cancellation, compromise, waiver or release of any material right or claim (or series of rights and claims which are related to one another) of the Company;

 

2.10.16.                                        any warranty claim related to or arising out of the Company’s products or services;

 

2.10.17.                                        by the Company, any adoption of, amendment or modification to or termination of any Plan or other material agreement, commitment or arrangement for the benefit of any of the directors, officers, employees or other service providers of the Company other than the termination of the Company’s employees participation in the Plans included among the Bachman Related Matters as of the Closing;

 

2.10.18.                                        any change to the Company’s accounting methods, principles or practices, or any tax elections by the Company which are outside the ordinary course of business consistent with past practices, except as listed on Schedule 2.10.18 ; or

 

2.10.19.                                        any arrangement or commitment by the Company to do anything described in the foregoing Sections 2.10.1 through 2.10.18.

 

2.11.      Real Property .  The Company owns no real property.  Schedule 2.11 lists all real property (the “ Real Property ”) in which the Company has any leasehold or other interest, lien, charge or Encumbrance thereon (“ Real Property Interests ”).  Each lease or agreement under which the Company is a lessee of any Real Property owned by any third party is a valid and subsisting agreement without any material default of the Company or of the other party thereto.  The Company’s possession of the Real Property has not been disturbed nor has any claim been asserted against the Company adverse to its rights in such Real Property Interests.  The Company has all necessary right to use the Real Property and the use of the Real Property by the Company conforms to all federal, state and local requirements regulating the use or improvement of real property and the operations thereon in all material respects including without limitation the Americans with Disabilities Act and applicable zoning and other local ordinances.   The execution, delivery or performance of this Agreement will not cause the loss of any zoning privileges, variances or clearances (collectively, “ Zoning ”) benefitting the Real Property, and neither the Company nor any of the Sellers has received notice of or knows of any proceeding or governmental inquiry, or any threatened proceeding or governmental inquiry, which might reasonably be expected to materially affect the Zoning of the Real Property.  Schedule 2.11 contains a summary description of the structures and improvements on any real property leased or otherwise used by the Company.

 

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2.12.      Personal Property .  Except as set forth on Schedule 2.12 , (i) the Company has all necessary right to use all personal property held by the Company or used in its business; (ii) all personal property owned or under lease by the Company, including that reflected in the Adjusted Balance Sheet, is held free and clear of Encumbrances except for the security interest securing the Buyer Loan; and (iii) the buildings, offices, and any other structures occupied by the Company, and all machinery, equipment and motor vehicles owned or used by the Company are in good operating condition, ordinary wear and tear excepted, and are adequate and sufficient for the operation of the Company’s business as currently conducted.  Set forth on Schedule 2.12 is a list of all personal property owned or leased by the Company with a value singly greater than $10,000.

 

2.13.      Inventory .  All of the inventory (finished goods, work in process and raw material) reflected on the Adjusted Balance Sheet of the Company has been valued at the lower of cost or market pursuant to the Accounting Practices consistently applied.  Such inventory is of good quality and salable in the ordinary course of business.  Set forth on Schedule 2.13 is a list of all current inventory of the Company as well as the fair market value thereof as of May 31, 2009.

 

2.14.      Restrictive Agreements .  Except as set forth in Schedule 2.14 , (i) there are no contracts, agreements or understandings to which the Company or any officer level or other key employee or consultant of the Company is a party or under which the Company or any officer level or other key employee or consultant of the Company is in any way bound that in any way excludes or substantially restricts the Company or any such person from competing in any geographic area or business sector, and (ii) there are no contracts, agreements or understandings (other than any with Buyer) to which any Seller is a party or under which any Seller is in any way bound that in any way excludes or substantially restricts such Seller from competing in any line of business of the Company.

 

2.15.      Banking .  Schedule 2.15 lists the name of each bank, savings or other financial institution in which the Company has an account, lock box or safe deposit box and the purpose of such account, lock box or safe deposit box, the account numbers thereof, identification of the amount on deposit as of the date hereof, and the names of all persons authorized to draw thereon or to have access thereto.

 

2.16.      Intellectual Property .  Schedule 2.16 identifies all Intellectual Property that is material to the Company’s business as presently conducted, along with (if applicable) the registration numbers, dates of issuance and names of the inventors or authors of such patents, marks, names and copyrights and any other related information.  Except as set forth on Schedule 2.16 , the Company owns the right to use all such Intellectual Property free and clear of all Encumbrances (other than the Buyer Loan); and the Company is not party to any license, agreement or arrangement of any kind, whether as licensee, licensor or otherwise, with respect to any such Intellectual Property.  Except as set forth on Schedule 2.16 , (i) the Company has the right (but not necessarily the exclusive right) and authority to use such property and such other inventions, trade secrets (including customer lists), processes, models, designs and formulas as are necessary to enable it to conduct and to continue to conduct all phases of its business in the manner presently

 

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conducted by the Company, including, without limitation, the design, development, manufacture, use, import and sale of the products, technology and services of the Company; (ii) to the best of the Company’s and Sellers’ knowledge such use does not, and will not, conflict with, infringe on, or violate any rights of others; (iii) no loss, reduction or expiration of any material Intellectual Property rights is threatened, pending or reasonably foreseeable; (iv) there have been no claims made in the three (3) years prior to the date of this Agreement against the Company asserting the invalidity, abuse, misuse or unenforceability of any of its Intellectual Property, and there are no grounds for the same known or reasonably knowable to the Sellers; and (v) the Company has not received within the last three (3) years any notice of conflict with the asserted rights of others with respect to any Intellectual Property.  Except as set forth in Schedule 2.16 , no payment of any kind to any third party will be owed by the Company with respect to the Intellectual Property utilized by the Company as of the date hereof following the Closing.

 

Except as set forth on Schedule 2.16 , all technology related to, used in or necessary to the conduct of the business of the Company as presently conducted by the Company was written and/or created solely by either: (i) employees of the Company acting within the scope of their work or employment who have validly and irrevocably assigned all of their rights, including all Intellectual Property rights therein, to the Company; (ii) by third parties who have validly and irrevocably assigned all of their rights, including all Intellectual Property rights therein, to the Company or (iii) is in the public domain, and no third party owns or has any rights to any of the Company Intellectual Property except that which is in the public domain. Except as set forth on Schedule 2.16, all Company Intellectual Property will be fully transferable, alienable or licensable by the Company without restriction and without payment of any kind to any third party following the Closing.

 

2.17.      Proprietary Information and Invention Assignment .  Except as set forth on Schedule 2.17 , each person currently or formerly employed by the Company (within the last two (2) years) has executed a confidential information and invention assignment agreement in the Company’s standard form delivered to counsel for the Buyer.  No such employee has excluded works or inventions made prior to his or her employment with the Company from his or her assignment of inventions pursuant to such employee’s confidential information and invention assignment agreement.  Except as set forth on Schedule 2.17 , each consultant to the Company that has developed or worked on the Company’s intellectual property has entered into an agreement containing appropriate confidentiality and invention assignment provisions in the Company’s standard form delivered to counsel for the Buyer.  No officer, employee or consultant of the Company is in violation of such confidential information and invention assignment agreement or any prior employee contract or proprietary information agreement with any other corporation or third party.

 

2.18.      Insurance .  The Company has in full force and effect the policies of fire, public liability, product liability, life, theft, title, property damage, casualty, employee fidelity, employee health and welfare, workers’ compensation, property and liability insurance and other

 

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forms of insurance listed on Schedule 2.18 , and the copies of such policies provided to Buyer are accurate and complete.  Such policies are of a nature and provide such coverage against loss to the extent and in the manner customary for companies engaged in similar businesses and owning similar assets or property in the same general areas in which the Company operates.  Furthermore, (i) the Company is not in breach or default under any such policies, and no event has occurred which, with notice or the lapse of time, would constitute such a breach or default, or permit termination, modification, or acceleration, of any such policy, and there is no material inaccuracy in any application for such policies or any predecessor policies, (ii) the Company’s activities and operations have been conducted in a manner so as to conform materially to the applicable provisions and requirements of such policies, and (iii) the Company has not received a notice of cancellation, non-renewal or premium increase with respect to any such policy.  The consummation of the Transactions will not cause a breach, termination, modification, or acceleration of any Company insurance policy.

 

2.19.      Contracts .  Schedule 2.19 correctly sets forth a list of all Material Contracts involving an amount in excess of twenty-five thousand dollars ($25,000) to which the Company is a party or by which the Company or its assets are bound.  The copies of the Material Contracts previously delivered to Buyer are complete and correct.  Except as shown on Schedule 2.19 , each of the Material Contracts (a) has been duly authorized, executed and delivered by the parties thereto, (b) remains in full force and effect to the extent of its terms without any amendment, modification or waiver not reflected in the Material Contracts previously provided to Buyer, (c) is binding on the parties thereto in accordance with and to the extent of its terms and (d) is not subject to, and neither Company nor any of the Sellers has received any written notice threatening or declaring, termination as a result of any alleged uncured breach or default.  Except as shown on Schedule 2.19 , the Company has performed all material obligations required to be performed by it to date under each Material Contract, and the Company is not in default under any existing note, mortgage, or other Material Contract.

 

2.20.      No Other Acquisition Agreement .  Neither Company nor any Seller is or intends to be a party to any agreement (other than this Agreement or the Related Agreements), formal or informal, written or oral, with any other entity concerning a merger, consolidation, asset or stock acquisition, disposition or other business acquisition or business combination transaction involving the Company.

 

2.21.      Suppliers and Customers .  Except as set forth in Schedule 2.21 , no single supplier or customer is material to the business or operations of the Company.  Except as set forth on Schedule 2.21 , since January 1, 2007, no supplier or customer of the Company has (i) canceled or otherwise terminated, or threatened to cancel or otherwise terminate, its relationship with the Company, (ii) materially decreased or limited or threatened to materially decrease or limit, its services, supplies or materials to the Company or its usage of the products or services of the Company (other than due to the Company requesting less of such service, supplies or materials, or the Company selling less of such products or services in the ordinary course of business), or (iii) had a dispute of any nature with the Company, in each case in a matter which involves over twenty-five

 

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thousand dollars ($25,000) other than Warranty Claims or Supplier Warranty Claims, and neither Company nor any Seller has notice that any supplier or customer of the Company intends to do any of the foregoing or other reason to believe that any of the foregoing may occur.  To the best of the Company’s and each Seller’s knowledge, the Transactions will not materially adversely affect the relationship of the Company with any of their respective suppliers or customers, subject to consent to the Transactions by AT&T.

 

2.22.      Officers, Directors and Employees .  Schedule 2.22 sets forth the names of all present officers and directors of the Company, and any employee, consultant, distributor, independent contractor, agent or representative of the Company.  Except as set forth on Schedule 2.22 , to the best of the Company’s and each Seller’s knowledge, none of the Company’s officers or directors (including, with respect to the officers and directors, their family members by blood or marriage, e.g., parents, spouse, siblings, children and in-laws) (i) owns, directly or indirectly, individually or collectively, any interest in a corporation, partnership, firm, association or sole proprietorship, which is either a competitor, potential competitor, customer or supplier of the Company or has an existing contractual relationship with the Company; or (ii) owes any money to or is owed any money by the Company, other than (A) indebtedness for compensation earned in the ordinary course of business and not yet paid but accrued on the Financial Statements and (B) the Other Indebtedness.

 

2.23.      Benefit Plans .

 

2.23.1.                                              As of the Closing Date, the Company will have delivered or made available to Buyer true and correct copies of (i) all “employee benefit plans” within the meaning of Section 3(3) of ERISA, (ii) all employment agreements, and (iii) all other written employee benefit, bonus, or other compensation plans which the Company maintains or in which the Company participates (each a “ Plan ” and, collectively, the “ Plans ”).  Other than the Plans, the Company has no employee benefit, bonus, vacation pay, sick pay, leave of absence, employee discount, change in control or other compensation arrangements, policies or practices, whether legally binding or not.

 

2.23.2.                                              None of the Plans is a defined benefit Plan, and the Company has never sponsored, maintained or contributed to, or ever been obligated to contribute to, a defined benefit Plan.

 

2.23.3.                                              None of the Plans is a multiemployer Plan, and the Company has never contributed to, or ever been obligated to contribute to, a multiemployer Plan.

 

2.23.4.                                              The Company does not maintain or contribute to any plan that provides health benefits to an employee after the employee’s termination of employment or retirement except as required under Section 4980B of the Code and Sections 601 through 608 of ERISA.

 

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2.23.5.                                              All contributions to Plans that are required to be made by the Company prior to the Closing Date have been made or will have been made prior to the Closing Date.

 

2.23.6.                                              With respect to each Plan:

 

(a)            no prohibited transactions (as defined in Section 406 or 407 of ERISA or Section 4975 of the Code) have occurred for which a statutory exemption is not available; and

 

(b)            no action or claims (other than routine claims for benefits made in the ordinary course of Plan administration for which Plan administrative review procedures have not been exhausted) are pending against or with respect to the Plan, any employer who is participating (or who has participated) in any Plan, or any fiduciary (as defined in Section 3(21) of ERISA) of the Plan.

 

2.23.7.                                              The Company has no liability (whether joint or several) for a fine under Section 502 of ERISA.

 

2.23.8.                                              All of the Plans, to the extent applicable, are in compliance with the continuation of group health coverage provisions contained in Section 4980B of the Code and Sections 601 through 608 of ERISA.

 

2.23.9.                                              The Bachman Related Matters shall be terminated as of Closing.

 

2.24.      Environmental Matters .  The Company and Sellers have furnished Buyer with all material information which they possess or could obtain with reasonable effort pertaining to the environmental history of the Premises and with copies of all sampling and test results that the Company possesses obtained from all environmental and/or health samples, tests and monitoring programs taken or conducted at and around the Premises, and all such information and copies of test results provided to Buyer are true, accurate and complete.  The Company has materially complied with, and the Company and the Premises are in material compliance with, the provisions of all federal, state and local environmental, health and safety laws, codes and ordinances, and all rules and regulations promulgated thereunder, pertaining to storage and disposal of pathogens and radioactive substances, air and water quality, Hazardous Materials, waste disposal, air emissions, water discharges, and other environmental and health safety matters with respect to the use or occupation of the Premises.  Except as set forth on Schedule 2.24 , (i) the Company has not generated, handled, treated, stored, transported or disposed of any Hazardous Material, and neither the Premises nor any real property adjacent to, adjoining, or in the vicinity of the Premises has been or is being used for the generation, handling, treatment, storage, transportation or disposal of any Hazardous Material and (ii) the Company does not have any liability or obligation relating to the use, transportation, storage or disposal of Hazardous Material nor has the Company or any Seller received notice of, nor does the Company or any Seller know or have reason to know of any facts or circumstances which might reasonably be expected to give rise to

 

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liability relating to the use, transportation, storage, or disposal of Hazardous Materials, or which might reasonably be expected to give rise to liability for employee exposure to Hazardous Materials.  The Company has disposed or arranged for the disposal of their solid and liquid wastes in compliance with applicable Hazardous Materials laws and only at the locations listed on Schedule 2.24 .  The Company has not disposed or arranged for the disposal of any waste or Hazardous Materials to any location which is listed or proposed for listing under CERCLA, or on any similar state list, or which to the Company’s knowledge is the subject of federal, state or local enforcement actions or other investigations which may lead to liability on the part of the Company or Buyer for site investigation or cleanup costs, remedial work, damages to natural resources or for personal injury.  The Company does not own or lease any property located on a site which is listed or proposed for listing under CERCLA or on any similar state list.

 

2.25.      Compliance with Laws .  The Company is not in violation of any applicable law or regulation, or of any judgment, order, decree or other requirement of any court, tribunal or governmental body, or any agency or official acting in an official capacity, the violation of which, individually, has or might reasonably be expected to result in a Material Adverse Effect.  Without limiting the generality of the foregoing, the Company has always been and is currently in compliance with all applicable rules and regulations (state or federal) governing the business of modifying/converting and selling natural gas vehicles, except to the extent that any such violations referred to above, individually or in the aggregate, has not had and would not reasonably be expected to result in a Material Adverse Effect.

 

2.26.      Permits .  The Company has all Permits required for the ownership, use and operation of all of the Company’s property and assets, both real and personal, and all other Permits which are necessary or proper for the conduct of the Company’s business.  Each Permit with respect to the Company is listed on Schedule 2.26 .  Immediately after the Closing, each Permit will be valid and in full force and effect with respect to the Company and will not be subject to any pending or threatened proceeding to be revoked, limited or negated.  Neither Company nor any Seller knows or has reason to know of any facts or circumstances which would reasonably be expected to prevent renewal of the Permits listed on Schedule 2.26 after the Closing prior to their scheduled expiration or require additional Permits or Permit conditions in order to operate the Premises as presently operated.  The Company is in compliance in all material respects with the Permits.

 

2.27.      Labor Relations; Employees and Consultants .  The Company currently employs a total of approximately 27-30 employees and utilizes on a regular basis the services of approximately 1 consultant and generally enjoys good employer-employee or consulting relationships with such employees and consultant.  Except as set forth on Schedule 2.27 : (i) the Company is not a party to any legally binding, written employment or consulting agreement, contract or arrangement, and accurate and complete copies of any such employment and consulting contracts, as amended, listed on Schedule 2.27 have been provided to Buyer; (ii) all employees and consultants to the Company not parties to contracts listed on Schedule 2.27 are at will, and their retention by the Company may be terminated at any time with or without cause and without penalty except as provided by

 

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applicable law; (iii) the Company does not have any formal or informal, express or implied, severance or termination notice plan, program or policy, and upon termination of the employment of any employee or consulting arrangement with any consultant, neither Buyer nor the Company would be liable to any such terminated employee or consultant for “severance pay,” or any other payments by reason of anything which occurred prior to the Closing Date, except as provided by applicable law; (iv) each employee of the Company, at the time of hiring and orientation, was presented with a copy of the “BAF Technologies Employee Reference Manual” (the “ Employee Handbook ”), a copy of which has been previously provided to Buyer by Company, and was given time to review it and access to knowledgeable supervisory personnel to explain all terms therein, and thereafter properly initialed and signed such copy, and all such copies executed by any person who has been an employee of the Company at any time during the last five (5) years are in the possession of the Company; (v) the Company is not more than thirty (30) days delinquent in payments to any of its employees or consultants for any wages, salaries, commissions, benefits, bonuses or other direct or indirect compensation for any services performed by him or her to the date hereof or amounts required to be reimbursed to any of its employees or consultants; (vi) there is no pending or threatened litigation by any employees or consultants with respect to the Company, and no facts exist which would form the basis for any valid claim against the Company by any of its employees or consultants (other than for usual wages and benefits) that would result in the aggregate in a Material Adverse Effect; (vii) there are no pending or threatened administrative actions or claims with respect to the Company’s relationship to any employee or consultant including, without limitation, discrimination (whether for sex, age, race, religion, national origin or any other reason), and no facts exist which would form the basis for any successful administrative action or valid administrative claim against the Company with respect to the Company’s relationship to any employee or consultant that would result in the aggregate in a Material Adverse Effect; (viii) the Company is in compliance with all federal, state and local laws and regulations respecting labor, employment and employment practices, terms and conditions of employment and wages and hours, except to the extent that any noncompliance would not have a Material Adverse Effect; (ix) there is no unfair labor practice complaint against the Company pending before the National Labor Relations Board or any comparable state, local or foreign agency; (x) there is no material labor strike, dispute, slowdown or stoppage actually pending or threatened against or involving the Company; and (xi) the Company is not a party, nor is it subject, to any collective bargaining agreement and none is currently being negotiated, and neither Company nor any Seller is aware of any union organizing activities in connection with the Company.  The Company has no plans to terminate, and to the best of the Company’s and each Seller’s knowledge, no executive or key employee or consultant of the Company has any plans to terminate the employment or consulting relationship of any such Person with the Company either prior to or within 180 days after the Closing, except as set forth in Schedule 2.16.

 

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2.28.      Taxes .

 

2.28.1.                                              The Company has filed or caused to be filed in a timely manner all Returns that it was required to file.  All such Returns were materially correct and complete.

 

2.28.2.                                              All Taxes owed by the Company have been paid when due.  All Taxes that the Company has been required to collect or withhold have been duly collected or withheld and, to the extent required when due, have been or will be duly paid to the proper Governmental Authority.  No claim has been made within five (5) years prior to the date of this Agreement by an authority in a jurisdiction where the Company does not file Returns that it is or may be subject to taxation by that jurisdiction.  There are no liens for Taxes on any of the Company’s properties or assets, other than liens for Taxes not yet due and payable or for Taxes that the Company is contesting in good faith through appropriate proceedings and for which appropriate reserves have been established; the amount of each such liens is set forth in the Disclosure Schedule.

 

2.28.3.                                              No deficiencies for Taxes have been claimed, proposed or assessed by any Governmental Authority against the Company, that are unpaid.  There are no pending or, to the best of the Company’s knowledge, threatened audits, investigations or claims for or relating to any additional liability in respect of Taxes.

 

2.28.4.                                              The unpaid Taxes of the Company (i) did not, as of the date of the Adjusted Balance Sheet, exceed the reserve for Taxes (excluding any reserve for deferred Taxes established to reflect timing differences between book and Tax income) set forth on the face of the Adjusted Balance Sheet (rather than in any notes thereto), and (ii) will not exceed that reserve as adjusted for operations and transactions through the Closing Date in accordance with the past custom and practices of the Company in filing its Returns, except for the income taxes for the Short Period (which shall be the responsibility of the Sellers).

 

2.28.5.                                              The Company is not a party to or bound by any obligations under any tax sharing, tax allocation, tax indemnity or similar agreement or arrangement.

 

2.28.6.                                              The Company has made an election to be taxed as an “S” corporation under Section 1362(a) of the Code, and has qualified as an S corporation for federal and state income tax purposes (in the states the Company is qualified to conduct business) at all times since its formation.

 

2.28.7.                                              Since the date of the Adjusted Balance Sheet, the Company has written off, in accordance with its understanding of GAAP and applicable income tax law, unamortized costs associated the Research and Development Reserve relating to pre-2008 vehicles.  The write-offs recorded by the Company total approximately $626,000; this amount exceeds the previously established reserve by approximately $26,000.  The Buyer acknowledges this write-off and, assuming

 

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such write-offs are in accordance with GAAP and allowable under applicable income tax law, has no objections to it.

 

2.29.      Indebtedness .  Schedule 2.29 sets forth all the outstanding Indebtedness of the Company, all of which may be repaid at any time without premium or penalty.

 

2.30.      No Finder’s Fee .  Neither Company nor any of the Company’s shareholders, officers, directors, Agents or employees have agreed to pay a commission, finder’s or investment banking fee, or similar payment in connection with the Transactions or any matter related hereto to any Person, nor has such Person taken any action on which a claim for such payment could be based.

 

2.31.      Sale of Stock .  Subject in part to the truth and accuracy of Buyer’s representations set forth in Article 4 of this Agreement, the offer and sale of the Stock as contemplated by this Agreement are exempt from the registration requirements of the Securities Act of 1933, as amended (the “ Act ”), and will not result in a violation of the qualification or registration requirements of any applicable state securities laws, and neither the Company nor any Seller nor any authorized Agent acting on behalf of any of them will take any action hereafter that would cause the loss of such exemption..

 

2.32.      Accuracy of Information Furnished .  No statement or information contained in any representation herein of the Company or of Sellers, or in any schedule, certificate or other document or information furnished (or to be furnished) in writing, in connection with this Agreement, the Related Agreements or the Transactions, by or on behalf of the Company or any Seller to Buyer or its Agents (other than previous financial statements which have been restated and are attached hereto as Schedule 2.6 ) contains any untrue statement of a material fact, provided however, neither the Company nor Sellers make any representation concerning forecasts and projections.

 

2.33.      Due Diligence Access .  As of the Closing, Sellers and the Company shall have provided the Buyer and the Buyer’s Agents with full and complete access to all of the Company’s records and other documents and data, and shall have produced all documents and related materials in response to the itemized requests on the Buyer’s due diligence request list sent to the Company in contemplation of the Transactions.

 

2.34.      No Other Representations or Warranties.   The Company does not make any representations or warranties to the Buyer except as specifically set forth in this Agreement and the Related Agreements.

 

3.                                        REPRESENTATIONS AND WARRANTIES OF SELLERS REGARDING SELLERS AND RELATED MATTERS .

 

As a material inducement for Buyer to enter into this Agreement, each Seller represents and warrants to Buyer that each of the statements in this Article 3 is complete and correct as of the date hereof and will be complete and correct as of the Closing Date, all except as expressly

 

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set forth in the Disclosure Schedule attached hereto, specifying by number the representation qualified:

 

3.1.            Capital Stock .  Such Seller holds of record, owns beneficially and has good and marketable title to all of such Stock owned by such Seller as reflected on Schedule 2.4 , free and clear of Encumbrances, options, warrants, purchase rights, contracts, commitments, equities, claims and demands.  Such Seller does not hold of record, own beneficially or otherwise have any claim or title to any shares of capital stock of the Company other than that reflected on Schedule 2.4 , nor does such Seller hold of record, own beneficially or otherwise have any claim or title to any securities convertible into or exercisable for shares of capital stock of the Company, except as set forth on Schedule 2.4 .  Such Seller is not a party to any voting trust, proxy, or other agreement or understanding with respect to the voting of any Stock which will survive the Closing Date.  Sellers collectively own 100% of the outstanding capital stock of the Company.

 

3.2.            Agreements Authorized .  Such Seller has all necessary power and authority to execute and deliver this Agreement and the Related Agreements to which such Seller is a party, and to consummate the Transactions.  The execution, delivery and performance of this Agreement, and the Related Agreements to which such Seller is a party, by such Seller have been duly authorized by all necessary corporate and other action and do not require notice to, or the consent or approval of, any governmental or other regulatory authority or other person.  This Agreement, and the Related Agreements to which such Seller is a party, have been duly executed and delivered by each Seller, and are legal, valid and binding obligations of each such Seller enforceable against such Seller in accordance with their respective terms, subject to the effect of any applicable bankruptcy, reorganization, insolvency, moratorium or similar laws affecting creditors’ rights generally and subject to the effect of general principles of equity, including, without limitation, concepts of materiality, reasonableness, good faith and the possible unavailability of specific performance or injunctive relief, regardless of whether considered in a proceeding in equity or at law.

 

3.3.            No Conflict .  The execution, delivery and performance by each Seller of this Agreement and the Related Agreements to which such Seller is a party will not (i) modify, breach or constitute grounds for the occurrence or declaration of a default under or allow another party a right to terminate any agreement, indenture, undertaking or other instrument to which such Seller is a party or by which it or any of its assets may be bound or affected, (ii) violate any provision of law or any regulation or any order, judgment, or decree of any court or other agency of government to which such Seller is subject, (iii) violate any provision of the Organizational Documents of any such corporate Seller which is a corporation, or partnership agreement of any such Seller which is a partnership, or trust instrument of any such Seller which is a trust, or (iv) result in the creation or imposition of (or the obligation to create or impose) any Encumbrance or other claim on any of the properties of such Seller.

 

3.4.            Litigation .  There is no action, suit, proceeding or investigation pending or currently threatened against such Seller that questions the validity of this Agreement or the Related

 

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Agreements, the right of the Seller to enter into this Agreement or the Related Agreements, or to consummate the Transactions, or that could reasonably be expected to result, either individually or in the aggregate, in any Material Adverse Effect.

 

3.5.            No Finder’s Fees .  Neither Seller nor any other Person acting on behalf of such Seller has agreed to pay a commission, finder’s or investment banking fee, or similar payment in connection with the Transactions or any matter related hereto to any Person, nor has such Person taken any action on which a claim for such payment could be based.

 

3.6.            Other Business .  Such Seller does not have any Affiliate or any direct or indirect equity participation in any other corporation, partnership, trust, or other business association that engages in the Business, other than the Company.

 

3.7.            Solvency .

 

3.7.1.                Within the three (3) years preceding the date of this Agreement, such Seller has not, at any time, (i) made a general assignment for the benefit of creditors, (ii) filed, or had filed against it, any bankruptcy petition or similar filing, (iii) suffered the attachment or other judicial seizure of all or a substantial portion of its assets, (iv) admitted in writing its inability to pay its debts as they become due, (v) been convicted of, or pleaded guilty to, any felony, or (vi) taken or been the subject of any action that may have an adverse effect on its ability to comply with or perform its covenants or obligations under this Agreement or the Related Agreements.

 

3.7.2.                Such Seller has the capacity and financial capability to comply with and perform all of the covenants and obligations under this Agreement and the Related Agreements.  Further, the Purchase Price represents reasonably equivalent value for the Stock, and upon consummation of the Closing, after giving effect to the consummation of all of the Transactions, including without limitation receipt of the payments to be made to the Sellers as contemplated in this Agreement, such Seller will not be insolvent.

 

3.8.            Review of Agreement; Acknowledgement .  Such Seller has carefully reviewed this Agreement and the Related Agreements to which such Seller is a party, fully understands and is aware of their terms, and understands such Seller’s rights, obligations and responsibilities hereunder and thereunder.  Such Seller has reviewed this Agreement and the Related Agreements to which such Seller is a party with such of the Seller’s legal and other professional advisors as the Seller considered to be appropriate.  Such Seller acknowledges that no facts or circumstances exist which provide a basis for any claim, demand, action, cause of action, in law or in equity, or suit by such Seller against the Company.

 

3.9.            No Other Representations or Warranties.   Sellers do not make any representations or warranties to the Buyer except as specifically set forth in this Agreement and the Related Agreements.

 

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4.                                        REPRESENTATIONS AND WARRANTIES OF BUYER .

 

As a material inducement for Sellers and the Company to enter into this Agreement, Buyer represents and warrants that each of the following statements in this Article 4 is complete and correct as of the date hereof, and will be true and correct as of the Closing except to the extent set forth in a written certificate delivered to the Sellers at the Closing:

 

4.1.            Due Organization .  Buyer (i) is a