AMENDEDAND RESTATED STOCK EXCHANGE AGREEMENT Among SOLARTHIN FILMS, INC. BUDASOLARTECHNOLOGIES CO. LTD. KRAFTELEKTRONIKAI ZRT NEWPALACE INVESTMENTS LTD. ISTVANKRAFCSIK and ATTILAHORVATH asof April 2, 2008 LISTOF EXHIBITS

 

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THIS AMENDED AND RESTATED STOCK EXCHANGE AGREEMENT (this “Agreement”) is made and entered into as of 2nd day of April 2009 (the “Effective Date”), by and among SOLAR THIN FILMS, INC., a Delaware corporation (the “Parent”); KRAFT ELEKTRONIKAI ZRT, a Hungarian corporation (the “Buyer”); BUDASOLAR TECHNOLOGIES CO. LTD., a Hungarian corporation (the “Company”); NEW PALACE INVESTMENTS LTD., a Cyprus corporation (“New Palace”); ISTVAN KRAFCSIK, an individual (“I. Krafcsik”); and ATTILA HORVATH, an individual (“A. Horvath”). NPI, I. Krafcsik and A. Horvath are sometimes individually referred to as a “Company Stockholder” and collectively, as the “Company Stockholders.”  The Parent, the Buyer, the Company, and the Company Stockholders are hereinafter sometimes individually referred to as a “Party” and collectively referred to as the “Parties.”  This Agreement amends and restates in its entirety a stock exchange agreement dated as of September 29th 2008 among the Parties (the “Prior Agreement”).

 

 

A.            The Company Stockholders currently own of record and beneficially 100% of the outstanding registered capital of the Company (the “Subject Company Quotas”) as hereinafter defined.

 

B.            The Parent currently owns of record and beneficially 100% of the outstanding capital stock or share capital of the Buyer (the “Buyer Shares”).

 

C.            Upon the terms and subject to the conditions set forth in this Agreement, the Buyer desires to acquire from the Company Stockholders the Subject Company Quotas. Company Stockholders desire to hand over the Subject Company Quotas for a consideration of receiving 49% of the Buyers Shares on a fully diluted basis (the “Minority Buyer Equity”).

 

D.            Buyer desires to acquire the Subject Company Quotas, and the Company desires to hand over such Subject Company Quotas, upon the terms and subject to the conditions set forth herein.

 

 

NOW, THEREFORE, in consideration of the premises and of the mutual covenants contained herein, the Parties agree as follows:

 

ARTICLE I. – TRANSFER OF SUBJECT COMPANY QUOTAS

 

1.1           Transfer of Subject Company Quotas.

 

(a)     On the terms and subject to the conditions of this Agreement, at the Closing referred to in Section 3.1 hereof, by signing a Quota Purchase Agreement with a purchase price of HUF 1.000.000  the Company Stockholders shall convey, assign, transfer and deliver to Buyer, and Buyer shall  acquire and accept delivery of the Subject Company Quotas that is the number of quotas of registered capital of the Company as shall represent one hundred percent (100%) of the issued and outstanding registered capital of the Company, on a fully-diluted basis, after giving effect to the exercise of all options, warrants or other rights to acquire Company registered capital, and all securities convertible into Company registered capital that is outstanding as of the Closing Date. The Subject Company Quotas shall be delivered to Buyer by the Company Stockholders, free and clear of any and all liens, mortgages, adverse claims, charges, security interests, encumbrances, other restrictions or limitations, or rights of any third persons whatsoever (collectively, “Liens”).

(b)    To effect the transfers contemplated by Section 1.1(a), at the Closing, the Company Stockholders shall deliver or cause to be delivered to Buyer, against consideration therefor in accordance with Section 2.2 hereof, evidence in a form acceptable to Buyer of the transfer from Company Stockholders to Buyer of the Subject Company Quotas, on the books of the Company.

 

 

2.1           Exchange Shares.  On the Closing Date, against delivery of evidence in a form acceptable to Buyer of the transfer from the Company Stockholders to the Buyer of the Subject Company Quotas on the books of the Company the Parent shall deliver, transfer and assign to the Company Stockholders (pro-rata as among each of the Company Stockholders as their respective interests in the Subject Company Quotas bear to each other, all set forth on Schedule 2.1 annexed hereto and made a part hereof), that number of fully paid up shares of capital stock or share capital of the Buyer (the “Minority Buyer Equity”) as shall represent forty-nine percent (49%) of the issued and outstanding Buyer’s Shares owned by the Parent, on a fully-diluted basis, after giving effect to the share capital increase as set forth here below and the exercise of all options, warrants or other rights to acquire Buyer capital stock or share capital, and all securities convertible into Buyer capital stock or share capital that is outstanding as of the Closing Date (the “Minority Interest).

 

2.2           Capitalization of Parent Loans and Company Stockholder Loans; Repayment.

 

(a)           Parent Loans.  On or before the Closing Date, the Buyer shall have a positive stockholders equity or capital of not less than United States One Thousand Dollars (USD $1,000.00).  In addition, the Parent shall cancel any outstanding loans and advances made by the Parent to the Buyer prior to the date of this Agreement (the “Parent Loans”).

 

(b)           Company Stockholder Loans.  On or before the Closing Date, the Buyer shall takeover and assume the obligation of the repayment of the loans made by the Company Stockholders or their Affiliates to the Company prior to the date of this Agreement disclosed by the Company in the Disclosure Letter (the “Company Stockholder Loans”), so that as at the Closing Date, the Company shall have either a positive stockholders equity or capital of not less than United States One Thousand Dollars (USD $1,000.00). Loans shall be evidenced by a five year note of the Buyer, fully subordinated to all other debt and creditors of the Buyer and the Company, and bearing interest at an annual rate equal to LIBOR for twelve month United States dollars interbank deposits as fixed by BBA plus a margin of three (3) percent (the “Note”). Loans shall be repaid by the Buyer as follows: (i) on October 1, 2009, the Company shall repay $ 250,000 provided that there’s a minimum amount of $ 1,600,000 available on the accounts of the Company. In case such amount is not available on the accounts on October 1, 2009  repayment of this tranche is due whenever the amount is made available on the accounts; (ii) on January 1, 2010, a further sum of $ 250,000 is repayable from the available Excess Cash; (iii) the outstanding amount of the Loan is repayable on January 1, 2011. Parties expressly set forth that the condition of the repayment of the Loan (or any tranche of the Loan) shall be the availability of Excess Cash. In case such condition is not met on a due date of repayment as set forth above the availability of Excess Cash shall be checked quarterly and  repayment shall take place immediately after such condition met.

 

2.3           Increase of Share Capital of Buyer.

 

(a)           In addition to the transactions contemplated by Section 2.2 above, for no additional consideration, the Parent shall irrevocably increase the shareholders’ equity and capital of the Buyer prior to Closing (the "Share Capital Increase") by investing in the Buyer the sum of United States Seven Hundred Fifty Thousand (USD $750,000) Dollars equivalent in Hungarian Forints calculated at the then current exchange rate.

 

(i)           Pursuant to the terms of a cooperation agreement, dated as of September 29, 2008, among the Company, the Parent and the Buyer (the “Cooperation  Agreement”), the Parent or the Buyer has caused to be paid to the Company as at the date of this Agreement, the aggregate sum of Seven Hundred and Fifty Thousand Dollars (USD $750,000).  Such payment shall be deemed to be a loan by the Buyer to the Company (the “Intercompany Loan”), and shall be repaid prior to Closing.

 

(b)           On the Closing Date, the Cooperation Agreement shall, by its terms, terminate and be of no further force or effect.  In addition on the Closing Date, any debts or other obligations of the Company that are then owed to the Buyer (other then the above Intercompany Loan) or the Parent shall terminate.

 

(c)           Notwithstanding anything to the contrary contained herein, in the event that the Closing shall not have occurred by the close of business (5:00 p.m. New York, New York USA time) on Friday, April 30, 2009, then and in such event this Agreement shall terminate and the Company shall thereafter continue to render services to the Buyer under the Interim Agreement until such time as the aggregate value of the services to be rendered by the Company to the Buyer (at the rates set forth in the Interim Agreement) shall equal (i) the aggregate amount of all payments made by the Parent or the Buyer to the Company pursuant to this Section 2.3 through and including the date of termination of this Agreement, less (ii) the invoiced value of the services provided by the Company to the Buyer prior to the termination of this Agreement.

 

3.1           Closing.  The consummation of the transfer of the Subject Company Quotas, transfer of the Minority Buyer Equity, consummation of the Investment and the other transactions contemplated by this Agreement (the “Closing”) will take place at 10:00 a.m. (local time) on a date to be specified by Buyer, which shall be no later than the fifth business day after satisfaction or waiver of the conditions set forth in Article VII of this Agreement (the "Closing Date"), at the offices of Norr Stiefenhofer Lutz, Budapest, Hungary, counsel to the Buyer, unless another date, time or place is agreed to in writing by the Parties hereto.  In no event, however, shall the Closing Date occur after April 30, 2009, unless otherwise mutually agreed upon by the Company Stockholders and the Buyer or the Parent.

 

3.2           Deliveries by the Company Stockholders.  At or prior to the Closing, the Company Stockholders shall deliver to Buyer:

 

(i)            Member’s list of the Company representing all, and not less than all, of the Subject Company Quotas,  with powers, Member’s meeting decisions and modified Articles of Association appropriate for the transfer of the Subject Company Quotas attached;

 

(ii)           the minute books of the Company;

 

(iii)          a certificate executed by the Company and the Company Stockholders to the effect that the conditions set forth in Section 7.1 have been satisfied;

 

(iv)          possession of all originals and copies of agreements, instruments, documents, deeds, books, records, files and other data and information within the possession of the Company and the Company Stockholders or any Affiliate of the Company Stockholders pertaining to the Company (collectively, the “Records”); provided, however, that the Company Stockholders may retain (1) copies of any tax returns and copies of Records relating thereto; (2) copies of any Records that the Company Stockholders is reasonably likely to need for complying with requirements of law; and (3) copies of any Records that in the reasonable opinion of the Company Stockholders will be required in connection with the performance of their obligations under Article VIII hereof; and

 

(v)           evidence satisfactory to Buyer that Buyer’s designees and the Company Stockholders shall be the only authorized signatories with respect to the Company’s various accounts, credit lines, safe deposit boxes or vaults set forth or required to be set forth in Schedule 4.17.

 

3.3           Deliveries by Buyer and Parent.  At or prior to the Closing, the Buyer and/or the Parent shall deliver to the Company Stockholders:

 

(i) certificates evidencing the Minority Buyer Equity representing all of the Minority Interest in the Buyer pursuant to Section 2.1 hereof,

(ii)           evidence satisfactory to the Company Stockholders of completion of the transactions contemplated pursuant to Section 2.2 and 2.3 hereof;

 

(iii)          a certificate executed by an authorized officer of the Buyer or the Parent, on behalf of the Buyer and the Parent, to the effect that the conditions set forth in Section 7.2 have been satisfied; and

 

(iv)          modified articles of incorporation of the Buyer in form and content acceptable to the Parties reflecting the regulations of the Shareholders Agreement.

 

3.4           Termination in Absence of Closing.

 

(a)   Subject to the provisions of Section 3.4(b) and (c), if the Closing has not occurred by the close of business on April 30, 2009, then any Party hereto may thereafter terminate this Agreement by written notice to such effect, to the other Parties hereto, without liability of or to any Party to this Agreement or any shareholder, director, officer, employee or representative of such Party unless the reason for Closing having not occurred is (i) such Party’s willful breach of the provisions of this Agreement, or (ii) if all of the conditions to such Party’s obligations set forth in Article VII have been satisfied or waived in writing by the date scheduled for the Closing pursuant to Section 3.1., the failure of such Party to perform its obligations under this Article III on such date; provided, however, that any termination pursuant to this Section 3.4 shall not relieve any Party hereto who was responsible for Closing having not occurred as described in clauses (i) or (ii) above of any liability for (x) such Party’s willful breach of the provisions of this Agreement, or (y) if all of the conditions to such Party’s obligations set forth in Article VII have been satisfied or waived in writing by the date scheduled for the Closing pursuant to Section 3.1, the failure of such Party to perform its obligations under this Article III on such date.

 

(b)   Notwithstanding the approval of the Board of Directors of Buyer, this Agreement and the transactions contemplated herein may be terminated and abandoned at any time on or prior to the Closing Date by the Buyer, if:

 

(i)           any representation or warranty made herein for the benefit of Buyer, or any certificate, schedule or document furnished to Buyer pursuant to this Agreement is untrue in any material respect; or

 

(ii)          the Company, the Company Stockholders or any of their Affiliates shall have defaulted in any material respect in the performance of any material obligation under this Agreement on their part to be performed.

 

(c)    This Agreement and the transactions contemplated herein may be terminated and abandoned at any time on or prior to the Closing Date by the Company Stockholders, if:

 

(i)           any representation or warranty made herein for the benefit of the Company Stockholders, or any certificate, schedule or document furnished to the Company Stockholders pursuant to this Agreement is untrue in any material respect; or

(ii)          the Buyer, the Parent or any of their Affiliates shall have defaulted in any material respect in the performance of any material obligation under this Agreement on their part to be performed.

 

ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

Each of (A) the Company; and (B) the Company Stockholders do hereby jointly and severally represent and warrant to the Buyer that:

 

4.1          Corporate Existence and Qualification.  The Company is a corporation duly organized, validly existing and in good standing under the laws of Hungary. The Company has the corporate power to own, manage, lease and hold its Properties and to carry on its business as and where such Properties are presently located and such business is presently conducted; and the Company is qualified to do business as a foreign corporation and in good standing in each jurisdiction in which it is required by law to be so qualified.

 

4.2          Authority, Approval and Enforceability.  This Agreement has been duly executed and delivered by the Company and the Company Stockholders, and each of the Company and the Company Stockholders have all requisite power and legal capacity to execute and deliver this Agreement and all Exhibits executed and delivered or to be executed and delivered in connection with the transactions provided for hereby, to consummate the transactions contemplated hereby and by the Exhibits, and to perform its obligations hereunder and under the Exhibits.  This Agreement and each Exhibit to which any of the Company and/or the Company Stockholders is a Party constitutes, or upon execution and delivery will constitute, the legal, valid and binding obligation of such Party, enforceable in accordance with its terms, except as such enforcement may be limited by general equitable principles or by applicable bankruptcy, insolvency, moratorium, or similar laws and judicial decisions from time to time in effect which affect creditors’ rights generally.

 

4.3          The Subject Company Quotas and Corporate Records.

 

(a)      The Company’s registered capital is HUF 1.000.000 representing 100% of the Quota owned by the Company Stockholders in the amounts set forth on Schedule 2.1 annexed hereto and made a part hereof.  The Subject Company Quotas are owned by the Company Stockholders free and clear of all Liens.  Except for the Subject Company Quotas, there are no quotas or shares of capital stock or other equity securities of the Company authorized, issued or outstanding.

 

(b)      All of the outstanding Subject Company Quotas of the Company are duly authorized, validly issued, fully paid and non-assessable and were not issued in violation of any: (i) preemptive or other rights of any Person to acquire securities of the Company, or (ii) applicable securities laws of Hungary, and the rules and regulations promulgated thereunder (collectively, the “Hungarian Securities Laws”).  There are no outstanding subscriptions, options, convertible securities, rights (preemptive or otherwise), warrants, calls or agreements relating to any of the Subject Company Quotas or other quotas of capital stock or other securities of the Company.  Upon delivery to Buyer at the Closing of documents set out in Section 3.2. (i) appropriate to transfer the ownership of  the Subject Company Quotas,, indicating good and valid title to the Subject Company Quotas will pass to Buyer, free and clear of all Liens of any kind, other than those arising from acts of Buyer.

(c)      The copies of the Articles of Incorporation and Bylaws of the Company provided to Buyer are true, accurate, and complete and reflect all amendments made through the date of this Agreement.  The Company’s minute books and member’s lists made available to Buyer for review were correct and complete as of the date of such review, no further entries have been made through the date of this Agreement, and such minute books contain an accurate record of all quotaholder and corporate actions of the shareholders and directors (and any committees thereof) of the Company taken by written consent or at a meeting since inception.  All corporate actions taken by the Company have been duly authorized or ratified.  All accounts, books, ledgers and official and other records of the Company fairly and accurately reflect all of the Company’s transactions, properties, assets and liabilities.

 

(d)      The Company does not own, directly or indirectly, any outstanding voting securities of or other interests in any other corporation, partnership, joint venture or other business entity.

 

4.4          No Defaults or Consents.  Except as otherwise set forth in Schedule 4.4 hereto, the execution and delivery of this Agreement and the Exhibits by Company Stockholders and the Company and the performance by Company Stockholders and the Company of their obligations hereunder and there under will not violate any provision of law or any judgment, award or decree or any indenture, agreement or other instrument to which the Company Stockholders and/or the Company is a Party, or by which the properties or assets of the Company Stockholders or the Company is bound or affected, or conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under, any such indenture, agreement or other instrument, in each case except to the extent that such violation, default or breach could not reasonably be expected to delay or otherwise significantly impair the ability of the Parties to consummate the transactions contemplated hereby.

 

4.5          No Company Defaults or Consents.  Except as otherwise set forth in Schedule 4.5 attached hereto, neither the execution and delivery of this Agreement nor the carrying out of any of the transactions contemplated hereby will:

 

(i)            violate or conflict with any of the terms, conditions or provisions of the charter or bylaws of the Company;

 

(ii)           violate any Legal Requirements applicable to the Company;

 

(iii)          violate, conflict with, result in a breach of, constitute a default under (whether with or without notice or the lapse of time or both), or accelerate or permit the acceleration of the performance required by, or give any other Party the right to terminate, any Contract or Permit binding upon or applicable to the Company;

 

(v)           require either of the Company Stockholders or the Company to obtain or make any waiver, consent, action, approval or authorization of, or registration, declaration, notice or filing with, any private non-governmental third Party or any Governmental Authority.

 

4.6          No Proceedings.  No suit, action or other proceeding is pending or, to the Knowledge of the Company and the Company Stockholders, threatened before any Governmental Authority seeking to restrain the Company or the Company Stockholders or prohibit their entry into this Agreement or prohibit the Closing, or seeking damages against the Company or its Properties as a result of the consummation of this Agreement.

 

4.7          Financial Statements; Liabilities; Accounts Receivable; Inventories.

 

(a)    The Company has delivered to Buyer true and complete copies of the unaudited balance sheets of the Company as at December 31, 2007 and as at December 31, 2008, and the related statements of operations and statements of cash flows with respect to the Company and its business from the 2007 date of inception of the Company through December 31, 2007, from January 1, 2008 to December 31, 2008, and the management prepared balance sheet and statement of operations as at December 31, 2008 and for the fiscal year then ended (collectively, the “Financial Statements”).  The said Financial Statements are attached hereto as Schedule 4.7(a).  All of such Financial Statements present fairly the financial condition and results of operations of the Company for the dates or periods indicated thereon.  All of such Financial Statements have been prepared in accordance with GAAP applied on a consistent basis throughout the periods indicated.

 

(b)    Except for (i) trade payables and accrued expenses incurred since inception in the ordinary course of business, none of which are material, (ii) executory contract obligations under (x) Contracts listed on Schedule 4.12, and/or (y) Contracts not required to be listed on Schedule 4.12, and (iii) the liabilities set forth in Schedule 4.7(b) attached hereto, the Company does not have any liabilities or obligations (whether accrued, absolute, contingent, known, or otherwise, and whether or not of a nature required to be reflected or reserved against in a balance sheet in accordance with GAAP).

 

(c)     Except as otherwise set forth in Schedule 4.7(c), the accounts receivable reflected on the December 31, 2008 balance sheet included in the Financial Statements referenced in Section 5.8(a) and all of the Company’s accounts receivable arising since December 31, 2008 (the “Balance Sheet Date”) arose from bona fide transactions in the ordinary course of business, and the goods and services involved have been sold, delivered and performed to the account obligors, and no further filings (with governmental agencies, insurers or others) are required to be made, no further goods are required to be provided and no further services are required to be rendered in order to complete the sales and fully render the services and to entitle the Company to collect the accounts receivable in full.  Except as set forth in Schedule 4.7(c), no such account has been assigned or pledged to any other person, firm or corporation, and no defense or set-off to any such account has been asserted by the account obligor or exists.

(d)      Except as otherwise set forth in Schedule 4.7(d), the Inventory of the Company as of the Closing Date shall consist of items of a quality, condition and quantity consistent with normal seasonally-adjusted Inventory levels of the Company and be usable and saleable in the ordinary and usual course of business for the purposes for which intended, except to the extent written down or reserved against on the Closing Date Balance Sheet.  Except as otherwise set forth in Schedule 4.7(d), the Company’s Inventory is valued on the Company’s books of account in accordance with GAAP (on an average cost basis) at the lower of cost or market, and the value of obsolete materials, materials below standard quality and slow-moving materials have been written down in accordance with GAAP.

 

(e)      Except as provided under the provisions of the agreements described in Schedule 4.7(e), the Company has and will have as of the Closing Date legal and beneficial ownership of its Properties, free and clear of any and all Liens.

 

(f)      By not later than April 30, 2009 or as soon thereafter as is practicable, the Company Stockholders shall have caused the Company to obtain, from the independent certified public accountant currently engaged by the Buyer (i) an audit of the balance sheets of the Company as at December 31, 2007 and December 31, 2008, and (ii) an audit of the statements of income (loss) and statement of cash flows of the Company for the following two (2) fiscal periods: (A) the date of inception through December 31, 2007, and (B) the twelve months ended December 31, 2008 (collectively, the “Audited Financial Statements”).  Such Audited Financial Statements shall (i) have been prepared in accordance with GAAP, (ii) include all footnotes and schedules required under GAAP, and (ii) be prepared in the same manner as the financial statements of the Buyer are prepared so as to comply with Regulation S-X, as promulgated under the United States Securities Act of 1933, as amended.  Unless otherwise agreed to by the Parties, the auditors regularly engaged to audit the financial statements of the Buyer shall also prepare and audit the aforesaid Audited Financial Statements of the Company.

 

4.8          Absence of Certain Changes.

 

(a)           Except as otherwise set forth in Schedule 4.8(a) attached hereto, since the Balance Sheet Date, there has not been:

 

(i)           any event, circumstance or change that had or might have a material adverse effect on the business, operations, prospects, Properties, financial condition or working capital of the Company;

 

(ii)          any damage, destruction or loss (whether or not covered by insurance) that had or might have a material adverse effect on the business, operations, prospects, Properties or financial condition of the Company; or

 

(iii)         any material adverse change in the Company’s sales patterns, pricing policies, accounts receivable or accounts payable.

 

(b)           Except as otherwise set forth in Schedule 4.8(b) attached hereto, since the Balance Sheet Date, the Company has not done any of the following:

 

(i)           merged into or with or consolidated with, any other corporation or acquired the business or assets of any Person;

 

(ii)         purchased any securities of any Person;

 

(iii)        created, incurred, assumed, guaranteed or otherwise become liable or obligated with respect to any indebtedness, or made any loan or advance to, or any investment in, any person, except in each case in the ordinary course of business;

 

(iv)        made any change in any existing election, or made any new election, with respect to any tax law in any jurisdiction which election could have an effect on the tax treatment of the Company or the Company’s business operations;

 

(v)         entered into, amended or terminated any material agreement;

 

(vi)        sold, transferred, leased, mortgaged, encumbered or otherwise disposed of, or agreed to sell, transfer, lease, mortgage, encumber or otherwise dispose of, any Properties except (i) in the ordinary course of business, or (ii) pursuant to any agreement specified in Schedule 4.12;

 

(vii)       settled any claim or litigation, or filed any motions, orders, briefs or settlement agreements in any proceeding before any Governmental Authority or any arbitrator;

 

(viii)      incurred or approved, or entered into any agreement or commitment to make, any expenditures in excess of USD $25,000 (other than those arising in the ordinary course of business or those required pursuant to any agreement specified in Schedule 4.12);

 

(ix)         maintained its books of account other than in the usual, regular and ordinary manner in accordance with generally accepted accounting principles and on a basis consistent with prior periods or made any change in any of its accounting methods or practices that would be required to be disclosed under generally accepted accounting principles;

 

(x)          adopted any Plan or Benefit Program or Agreement, or granted any increase in the compensation payable or to become payable to directors, officers or employees (including, without limitation, any such increase pursuant to any bonus, profit-sharing or other plan or commitment), other than merit increases to non-officer employees in the ordinary course of business and consistent with past practice;

 

(xi)         suffered any extraordinary losses or waived any rights of material value;

 

(xii)        made any payment to any Affiliate or forgiven any indebtedness due or owing from any Affiliate to the Company;

 

(xiii)       (A) liquidated Inventory or accepted product returns other than in the ordinary course, (B) accelerated receivables, (C) delayed payables, or (D) changed in any material respect the Company’s practices in connection with the payment of payables and/or the collection of receivables;

 

(xiv)       engaged in any one or more activities or transactions with an Affiliate or outside the ordinary course of business;

 

(xv)        declared, set aside or paid any dividends, or made any distributions or other payments in respect of its equity securities, or repurchased, redeemed or otherwise acquired any such securities;

 

(xvi)       amended its charter or bylaws;

 

(xvii)      issued any capital stock or other securities, or granted, or entered into any agreement to grant, any options, convertible rights, other rights, warrants, calls or agreements relating to its capital stock; or

 

(xviii)     committed to do any of the foregoing.

 

4.9         Compliance with Laws.  Except as otherwise set forth in Schedule 4.9, to the best knowledge of the Company the Company is and has been in compliance in all respects with any and all Legal Requirements applicable to the Company, other than failures to so comply that would not have an adverse effect on the business, operations, prospects, Properties or financial condition of the Company.  Except as otherwise set forth in Schedule 4.9, the Company (x) has not received or entered into any citations, complaints, consent orders, compliance schedules, or other similar enforcement orders or received any written notice from any Governmental Authority or any other written notice that would indicate that there is not currently compliance with all such Legal Requirements, except for failures to so comply that would not have an adverse effect on the business, operations, prospects, Properties or financial condition of the Company, and (y) to the best knowledge of the Company the Company is not in default under, and no condition exists (whether covered by insurance or not) that with or without notice or lapse of time or both would constitute a default under, or breach or violation of, any Legal Requirement or Permit applicable to the Company.  Without limiting the generality of the foregoing, the Company has not received notice of and) to the best knowledge of the Company  there is no basis for, any claim, action, suit, investigation or proceeding that might result in a finding that the Company is not or has not been in compliance with Legal Requirements relating to (a) the development, testing, manufacture, packaging, distribution and marketing of products, (b) employment, safety and health, (c) environmental protection, building, zoning and land use and/or (d) the Foreign Corrupt Practices Act and the rules and regulations promulgated thereunder.

4.10        Litigation.  Except as otherwise set forth in Schedule 4.10, there are no claims, actions, suits, investigations or proceedings against the Company pending or, to the Knowledge of the Company, threatened in any court or before or by any Governmental Authority, or before any arbitrator, that might have an adverse effect (whether covered by insurance or not) on the business, operations, prospects, Properties or financial condition of the Company and there is no basis for any such claim, action, suit, investigation or proceeding.  Schedule 4.10 also includes a true and correct listing of all material actions, suits, investigations, claims or proceedings that were pending, settled or adjudicated since inception.

 

4.11        Real Property.

 

(a)  Schedule 4.11(a) sets forth a list of all real property or any interest therein (including without limitation any option or other right or obligation to purchase any real property or any interest therein) currently owned, or ever owned, by the Company, in each case setting forth the street address and legal description of each property covered thereby (the “Owned Premises”).

 

(b) Schedule 4.11(b) sets forth a list of all leases, licenses or similar agreements relating to the Company’s use or occupancy of real estate owned by a third Party (“Leases”), true and correct copies of which have previously been furnished to Buyer, in each case setting forth (i) the lessor and lessee thereof and the commencement date, term and renewal rights under each of the Leases, and (ii) the street address and legal description of each property covered thereby (the “Leased Premises”).  The Leases and all guaranties with respect thereto, are in full force and effect and have not been amended in writing or otherwise, and no Party thereto is in default or breach under any such Lease.  No event has occurred which, with the passage of time or the giving of notice or both, would cause a material breach of or default under any of such Leases.  Neither the Company nor its agents or employees have received written notice of any claimed abatements, offsets, defenses or other bases for relief or adjustment.

 

(c)  With respect to each Owned Premises and Leased Premises, as applicable:  (i) the Company has good, marketable and insurable fee simple interest in the Owned Premises and a valid leasehold interest in the Leased Premises, free and clear of any Liens, encumbrances, covenants and easements or title defects that have had or could have an adverse effect on the Company’s use and occupancy of the Owned Premises and the Leased Premises; (ii) the portions of the buildings located on the Owned Premises and the Leased Premises that are used in the business of the Company are each in good repair and condition, normal wear and tear excepted, and are in the aggregate sufficient to satisfy the Company’s current and reasonably anticipated normal business activities as conducted thereon and, to the Knowledge of the Company, there is no latent material defect in the improvements on any Owned Premises, structural elements thereof, the mechanical systems (including, without limitation, all heating, ventilating, air conditioning, plumbing, electrical, utility and sprinkler systems) therein, the utility system servicing each Owned Premises and the roofs which have not been disclosed to Buyer in writing prior to the date of this Agreement; (iii) each of the Owned Premises and the Leased Premises (a) has direct access to public roads or access to public roads by means of a perpetual access easement, such access being sufficient to satisfy the current transportation requirements of the business presently conducted at such parcel; and (b) is served by all utilities in such quantity and quality as are necessary and sufficient to satisfy the current normal business activities conducted at such parcel; and (iv) the Company has not received notice of (a) any condemnation, eminent domain or similar proceeding affecting any portion of the Owned Premises or the Leased Premises or any access thereto, and, to the Knowledge of the Company, no such proceedings are contemplated, (b) any special assessment or pending improvement liens to be made by any governmental authority which may affect any of the Owned Premises or the Leased Premises, or  (c) any violations of building codes and/or zoning ordinances or other governmental regulations with respect to the Owned Premises or the Leased Premises.

4.12        Contracts.

 

(a)    Except as otherwise set forth in Schedule 4.12, the Company is not a Party to or bound by any of the following, whether written or oral:

 

(i)  any Contract that cannot by its terms be terminated by the Company with 30 days’ or less notice without penalty or whose term continues beyond one year after the date of this Agreement;

 

(ii)           Contract or commitment for capital expenditures by the Company in excess of $25,000 per calendar quarter in the aggregate;

 

(iii)           lease or license with respect to any Properties, real or personal, whether as landlord, tenant, licensor or licensee;

 

(iv)           agreement, Contract, indenture or other instrument relating to the borrowing of money or the guarantee of any obligation or the deferred payment of the purchase price of any Properties;

 

(v)           partnership or joint venture agreement;

 

(vi)           Contract or agreement with any Affiliate of the Company (including the Company Stockholders);

 

(vii)           agreement for the sale of any assets that in the aggregate have a net book value on the Company’s books of greater than $25,000;

 

(viii)          agreement that purports to limit the Company’s freedom to compete freely in any line of business or in any geographic area;

 

(ix)           preferential purchase right, right of first refusal, or similar agreement; or

 

(x)           other Contract that is material to the business of the Company.

(b)     All of the Contracts listed or required to be listed in Schedule 4.12 are valid, binding and in full force and effect, and the Company has not been notified or advised by any Party thereto of such Party’s intention or desire to terminate or modify any such Contract in any respect, except as disclosed in Schedule 4.12.  Neither the Company nor, to the Knowledge of the Company, any other Party is in breach of any of the terms or covenants of any Contract listed or required to be listed in Schedule 4.12.  Following the Closing, the Company will continue to be entitled to all of the benefits currently held by the Company under each Contract listed or required to be listed in Schedule 4.12.

 

(c)     Except as otherwise set forth in Schedule 4.12(c), the Company is not a Party to or bound by any Contract or Contracts the terms of which were arrived at by or otherwise reflect less-than-arm’s-length negotiations or bargaining.

 

4.13       Insurance.  Schedule 4.13 hereto is a complete and correct list of all insurance policies (including, without limitation, fire, liability, product liability, workers’ compensation and vehicular) presently in effect that relate to the Company or its Properties, including the amounts of such insurance and annual premiums with respect thereto, all of which have been in full force and effect from and after the date(s) set forth on Schedule 4.13. To the Knowledge of the Company such policies are sufficient for compliance by the Company with all applicable Legal Requirements and all material Contracts.  None of the insurance carriers has indicated to the Company an intention to cancel any such policy or to materially increase any insurance premiums (including, without limitation, workers’ compensation premiums), or that any insurance required to be listed on Schedule 4.13 will not be available in the future on substantially the same terms as currently in effect.  The Company has no claim pending or anticipated against any of its insurance carriers under any of such policies and, to the Knowledge of the Company, there has been no actual or alleged occurrence of any kind which could reasonably be expected to give rise to any such claim.  During the prior three years, all notices required to have been given by the Company or the Company Stockholders to any insurance company have been timely and duly given, and no insurance company has asserted that any claim is not covered by the applicable policy relating to such claim.

4.14       Intangible Rights.  Set forth on Schedule 4.14 is a list and description of all material foreign and domestic patents, patent rights, trademarks, service marks, trade names, brands and copyrights (whether or not registered and, if applicable, including pending applications for registration) owned, Used, licensed or controlled by the Company and all goodwill associated therewith.  The Company owns or has the right to use and shall as of the Closing Date own or have the right to use any and all information, know-how, trade secrets, patents, copyrights, trademarks, trade names, software, formulae, methods, processes and other intangible properties that are necessary or customarily Used by the Company for the ownership, management or operation of its Properties (“Intangible Rights”) including, but not limited to, the Intangible Rights listed on Schedule 4.14.  Except as set forth on Schedule 4.14, (i) the Company is the sole and exclusive owner of all right, title and interest in and to all of the Intangible Rights, and has the exclusive right to use and license the same, free and clear of any claim or conflict with the Intangible Rights of others; (ii) no royalties, honorariums or fees are payable by the Company to any person by reason of the ownership or use of any of the Intangible Rights; (iii) there have been no claims made against the Company asserting the invalidity, abuse, misuse, or unenforceability of any of the Intangible Rights and to the Knowledge of the Company no grounds for any such claims exist; (iv) the Company has not made any claim of any violation or infringement by others of any of its Intangible Rights or interests therein and, to the Knowledge of the Company, no grounds for any such claims exist; (v) the Company has not received any notice that it is in conflict with or infringing upon the asserted intellectual property rights of others in connection with the Intangible Rights, and neither the use of the Intangible Rights nor the operation of the Company’s businesses is infringing or has infringed upon any intellectual property rights of others; (vi) the Intangible Rights are sufficient and include all intellectual property rights necessary for the Company to lawfully conduct its business as presently being conducted; (vii) no interest in any of the Company’s Intangible Rights has been assigned, transferred, licensed or sublicensed by the Company to any person other than the Buyer pursuant to this Agreement; (viii) to the extent that any item constituting part of the Intangible Rights has been registered with, filed in or issued by, any Governmental Authority, such registrations, filings or issuances are listed on Schedule 4.14 and were duly made and remain in full force and effect; (ix) to the Knowledge of the Company, there has not been any act or failure to act by the Company or any of its directors, officers, employees, attorneys or agents during the prosecution or registration of, or any other proceeding relating to, any of the Intangible Rights or of any other fact which could render invalid or unenforceable, or negate the right to issuance of any of the Intangible Rights; (x) to the extent any of the Intangible Rights constitutes proprietary or confidential information, the Company has adequately safeguarded such information from disclosure; and (xi) all of the Company’s current Intangible Rights will remain in full force and effect following the Closing without alteration or impairment.

 

4.15       Equipment and Other Tangible Property.  Except as otherwise set forth on Schedule 4.15, the Company’s equipment, furniture, machinery, vehicles, structures, fixtures and other tangible property included in the Properties (the “Tangible Company Properties”), other than Inventory, is suitable for the purposes for which intended and in good operating condition and repair consistent with normal industry standards, except for ordinary wear and tear, and except for such Tangible Company Properties as shall have been taken out of service on a temporary basis for repairs or replacement consistent with the Company’s prior practices and normal industry standards.  To the Knowledge of the Company, the Tangible Company Properties are free of any structural or engineering defects, and during the past five years there has not been any significant interruption of the Company’s business due to inadequate maintenance or obsolescence of the Tangible Company Properties.

4.16       Permits; Environmental Matters.

 

(a)     Except as otherwise set forth in Schedule 4.16(a), the Company has all Permits necessary for the Company to own, operate, use and/or maintain its Properties and to conduct its business and operations as presently conducted and as expected to be conducted in the future.  Except as otherwise set forth in Schedule 4.16(a), all such Permits are in effect, no proceeding is pending or, to the Knowledge of the Company, threatened to modify, suspend or revoke, withdraw, terminate, or otherwise limit any such Permits, and no administrative or governmental actions have been taken or, to the Knowledge of the Company, threatened in connection with the expiration or renewal of such Permits which could adversely affect the ability of the Company to own, operate, use or maintain any of its Properties or to conduct its business and operations as presently conducted and as expected to be conducted in the future.  Except as otherwise set forth in Schedule 4.16(a),to the Knowledge of the Company (i) no violations have occurred that remain uncured, un-waived, or otherwise unresolved, or are occurring in respect of any such Permits, other than inconsequential violations, and (ii) no circumstances exist that would prevent or delay the obtaining of any requisite consent, approval, waiver or other authorization of the transactions contemplated hereby with respect to such Permits that by their terms or under applicable law may be obtained only after Closing.

 

(b)    Except as set forth on Schedule 4.16(b), there are no claims, liabilities, investigations, litigation, administrative proceedings, whether pending or, to the Knowledge of the Company, threatened, or judgments or orders relating to any Hazardous Materials (collectively called “Environmental Claims”) asserted or threatened against the Company or relating to any real property currently or formerly owned, leased or otherwise Used by the Company.  Neither the Company nor, to the Knowledge of the Company, any prior owner, lessee or operator of said real property, has caused or permitted any Hazardous Material to be used, generated, reclaimed, transported, released, treated, stored or disposed of in a manner which could form the basis for an Environmental Claim against the Company or the Buyer.  Except as set forth on Schedule 4.16(b), the Company has not assumed any liability of any Person for cleanup, compliance or required capital expenditures in connection with any Environmental Claim.

 

(c)     Except as set forth on Schedule 4.16(c), to the Knowledge of the Company no Hazardous Materials are or were stored or otherwise located, and no underground storage tanks or surface impoundments are or were located, on real property currently or formerly owned, leased or Used by the Company or, to the Knowledge of the Company, on adjacent parcels of real property, and no part of such real property or, to the Knowledge of the Company, any part of such adjacent parcels of real property, including the groundwater located thereon, is presently contaminated by Hazardous Materials.

 

(d)     Except as set forth on Schedule 4.16(d), to the Knowledge of the Company the Company has been and is currently in compliance with all applicable Environmental Laws, including obtaining and maintaining in effect all Permits required by applicable Environmental Laws.

4.17       Banks.  Schedule 4.17 sets forth (i) the name of each bank, trust company or other financial institution and stock or other broker with which the Company has an account, credit line or safe deposit box or vault, (ii) the names of all persons authorized to draw thereon or to have access to any safe deposit box or vault, (iii) the purpose of each such account, safe deposit box or vault, and (iv) the names of all persons authorized by proxies, powers of attorney or other like instrument to act on behalf of the Company in matters concerning any of its business or affairs.  Except as otherwise set forth in Schedule 4.17, no such proxies, powers of attorney or other like instruments are irrevocable.

 

4.18       Suppliers and Customers.  The Company has furnished the Buyer with a list setting forth (i) the ten principal suppliers of the Company from the date of its inception through December 31, 2008, together with the dollar amount of goods purchased by the Company from each such supplier during each such period, and (ii) the ten principal customers of the Company from the date of its inception through December 31, 2008, together with the dollar amount of goods and/or services sold by the Company to each such customer during each such period.  The Company maintains good relations with all suppliers and customers as well as with governments, partners, financing sources and other Parties with whom the Company has significant relations, and no such Party has canceled, terminated or made any threat to the Company to cancel or otherwise terminate its relationship with the Company or to materially decrease its services or supplies to the Company or its direct or indirect purchase or usage of the products or services of the Company.

 

4.19       Absence of Certain Business Practices.  Neither the Company, the Company Stockholders nor any other Affiliate or to the Knowledge of the Company any agent of the Company, or any other person acting on behalf of or associated with the Company, acting alone or together, has (a) received, directly or indirectly, any rebates, payments, commissions, promotional allowances or any other economic benefits  from any customer, supplier, employee or agent of any customer or supplier which may reasonably effect business decisions; or (b)  given or agreed to give any money, gift or similar benefit  to any customer, supplier, employee or agent of any customer or supplier, any official or employee of any government (domestic or foreign), or any political Party or candidate for office (domestic or foreign), or other person who was, is or may be in a position to help or hinder the business of the Company (or assist the Company in connection with any actual or proposed transaction), in each case which (i) may subject the Company to any damage or penalty in any civil, criminal or governmental litigation or proceeding or (ii) if not continued in the future, may reasonably adversely affect the assets, business, operations or prospects of the Company.

4.20       Products, Services and Authorizations.

 

(a)     Each Product designed, manufactured, repaired or serviced by the Company has been designed, manufactured, repaired or serviced in accordance with (i) the specifications under which the Product is normally and has normally been manufactured, and (ii) to the best Knowledge  of the Company the provisions of all applicable laws, policies, guidelines and any other governmental requirements.

 

(b)     Schedule 4.20(b) sets forth (i) a list of all Products which at any time have been recalled, withdrawn or suspended by the Company, whether voluntarily or otherwise, including the date recalled, withdrawn or suspended and a brief description of all completed or pending proceedings seeking the recall, withdrawal, suspension or seizure of any Product, (ii) a brief description of all completed or pending proceedings seeking the recall, withdrawal, suspension or seizure of any Product, and (iii) a list of all regulatory letters received by the Company or the Company Stockholders or any of its agents relating to the Company or any of the Products or the Company’s establishments.

 

(c)     There exists no set of facts which could reasonably be expected to furnish a basis for the recall, withdrawal or suspension of any product registration, product license, repair or overhaul license, manufacturing license, wholesale dealers license, export license or other license, approval or consent of any governmental or regulatory authority with respect to the Company or any of the Products.

 

(d)     There are no claims existing or to the Knowledge of the Company threatened under or pursuant to any warranty, whether express or implied, on products or services sold by the Company.  There are no claims existing and to the Knowledge of the Company there is no basis for any claim against the Company for injury to persons, animals or property as a result of the sale, distribution or manufacture of any product or performance of any service by the Company, including, but not limited to, claims arising out of the defective or unsafe nature of its products or services.  The Company has full and adequate insurance coverage for products liability claims against it.

 

4.21       Transactions With Affiliates.  Except as set forth on Schedule 4.21 and except for normal advances to employees consistent with past practices, payment of compensation for employment to employees consistent with past practices, and participation in scheduled Plans or Benefit Programs and Agreements by employees, the Company has not purchased, acquired or leased any property or services from, or sold, transferred or leased any property or services to, or loaned or advanced any money to, or borrowed any money from, or entered into or been subject to any management, consulting or similar agreement with, or engaged in any other significant transaction with the Company Stockholders or any other officer, director or shareholder of the Company or any of their respective Affiliates.  Except as set forth on Schedule 4.21, neither the Company Stockholders, nor any other Affiliate of the Company is indebted to the Company for money borrowed or other loans or advances, and the Company is not indebted to any such Affiliate.

4.22       Other Information.  The information furnished by the Company Stockholders and the Company to Buyer pursuant to this Agreement (including, without limitation, information contained in the exhibits hereto, the Schedules identified herein, the instruments referred to in such Schedules and the certificates and other documents to be executed or delivered pursuant hereto by the Company Stockholders and/or the Company at or prior to the Closing) is not, nor at the Closing will be, false or misleading in any material respect, or contains, or at the Closing will contain, any misstatement of material fact, or omits, or at the Closing will omit, to state any material fact required to be stated in order to make the statements therein not misleading.

 

ARTICLE V. REPRESENTATIONS AND WARRANTIES OF THE PARENT AND

 

The Parent and the Buyer hereby jointly and severally represents and warrants to the Company and the Company Stockholders that:

 

5.1         Corporate Existence and Qualification.  The Buyer is a corporation duly organized, validly existing and in good standing under the laws of Hungary. The Buyer has the corporate power to own, manage, lease and hold its Properties and to carry on its business as and where such Properties are presently located and such business is presently conducted; and the Buyer is qualified to do business as a foreign corporation and in good standing in each jurisdiction in which it is required by law to be so qualified.

 

5.2         Authority, Approval and Enforceability.  This Agreement has been duly executed and delivered by the Parent and the Buyer, and each of the Parent and the Buyer have all requisite power and legal capacity to execute and deliver this Agreement and all Exhibits executed and delivered or to be executed and delivered in connection with the transactions provided for hereby, to consummate the transactions contemplated hereby and by the Exhibits, and to perform its obligations hereunder and under the Exhibits.  This Agreement and each Exhibit to which any of the Parent  and/or the Buyer is a Party constitutes, or upon execution and delivery will constitute, the legal, valid and binding obligation of such Party, enforceable in accordance with its terms, except as such enforcement may be limited by general equitable principles or by applicable bankruptcy, insolvency, moratorium, or similar laws and judicial decisions from time to time in effect which affect creditors’ rights generally.

5.3         The Buyer Shares and Corporate Records.

 

(a)      The authorized, issued and outstanding shares of capital stock of the Buyer is set forth on Schedule 5.3 annexed hereto ("the Buyer Shares"). The Parent is the record and beneficial owner of one hundred (100%) percent of the issued and outstanding of the Buyer Shares.  The Buyer Shares are owned by the Parent free and clear of all Liens.  Except for the Buyer Shares, there are no shares of capital stock or other equity securities of the Buyer authorized, issued or outstanding.  No ordinary shares of common stock or other capital shares are held in the Buyer’s treasury.

 

(b)     All of the outstanding Buyer Shares are duly authorized, validly issued, fully paid and non-assessable and were not issued in violation of any: (i) preemptive or other rights of any Person to acquire securities of the Buyer, or (ii) applicable Hungarian Securities Laws.  There are no outstanding subscriptions, options, convertible securities, rights (preemptive or otherwise), warrants, calls or agreements relating to any of the Buyer Shares or other shares of capital stock or other securities of the Buyer.  Upon delivery to the Company Stockholders at Closing of certificates of Minority Buyer Equity representing the Minority Interest, accompanied by stock powers duly endorsed in blank, good and valid title to the Minority Buyer Equity will pass to the Company Stockholders free and clear of all Liens of any kind, other than those arising from acts of the Parent or the Buyer.

 

(c)     The copies of the Articles of Incorporation and Bylaws of the Buyer provided to the Company Stockholders are true, accurate, and complete and reflect all amendments made through the date of this Agreement.  The Buyer’s stock and minute books made available to the Company Stockholders for review were correct and complete as of the date of such review, no further entries have been made through the date of this Agreement, and such minute books contain an accurate record of all shareholder and corporate actions of the shareholders and directors (and any committees thereof) of the Buyer taken by written consent or at a meeting since inception.  All corporate actions taken by the Buyer have been duly authorized or ratified.  All accounts, books, ledgers and official and other records of the Buyer fairly and accurately reflect all of the Buyer’s transactions, properties, assets and liabilities.

 

(d)     The Buyer does not own, directly or indirectly, any outstanding voting securities of or other interests in any other corporation, partnership, joint venture or other business entity.

 

5.4         No Defaults or Consents.  Except as otherwise set forth in Schedule 5.4 hereto, the execution and delivery of this Agreement and the Exhibits by the Parent and the Buyer and the performance by the Parent and the Buyer of their obligations hereunder and there under will not violate any provision of law or any judgment, award or decree or any indenture, agreement or other instrument to which the Parent and/or the Buyer is a Party, or by which the properties or assets of the Parent or the Buyer is bound or affected, or conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under, any such indenture, agreement or other instrument, in each case except to the extent that such violation, default or breach could not reasonably be expected to delay or otherwise significantly impair the ability of the Parties to consummate the transactions contemplated hereby.

5.5         No Buyer Defaults or Consents.  Except as otherwise set forth in Schedule 5.5 attached hereto, neither the execution and delivery of this Agreement nor the carrying out of any of the transactions contemplated hereby will:

 

(i)           violate or conflict with any of the terms, conditions or provisions of the charter or bylaws of the Buyer;

 

(ii)           violate any Legal Requirements applicable to the Buyer;

 

(iii)           violate, conflict with, result in a breach of, constitute a default under (whether with or without notice or the lapse of time or both), or accelerate or permit the acceleration of the performance required by, or give any other Party the right to terminate, any Contract or Permit binding upon or applicable to the Buyer;

 

(iv)           result in the creation of any Lien, charge or other encumbrance on any Properties of the Buyer; or

 

(v)           require either of the Parent or the Buyer to obtain or make any waiver, consent, action, approval or authorization of, or registration, declaration, notice or filing with, any private non-governmental third Party or any Governmental Authority.

 

5.6         No Proceedings.  Except as set forth in the Parent’s Public Filings, no suit, action or other proceeding is pending or, to the Knowledge of the Buyer and the Parent, threatened before any Governmental Authority seeking to restrain the Buyer or the Parent or prohibit their entry into this Agreement or prohibit the Closing, or seeking damages against the Buyer or its Properties as a result of the consummation of this Agreement.

 

5.7         Financial Statements; Liabilities; Accounts Receivable; Inventories.

 

(a)     Parent has delivered to Company Stockholders (i) the consolidated audited accounts of the Parent for the fiscal years ended December 31, 2006 and 2007 true and complete copies of the audited balance sheet, statement of operations and statement of cash flows and (ii) copies of the unaudited balance sheet, statement of operations and statement of cash flows of the Parent as at September 30, 2008 and for the nine months then ended (the “Parent Financial Statements”).

 

(b)     Buyer has delivered to Company Stockholders (i) audited accounts of Buyer for the fiscal years ended December 31, 2006 and 2007 true and complete copies of the audited balance sheet, statement of operations and statement of cash flows and (ii) copies of the unaudited balance sheet, statement of operations and statement of cash flows of Buyer as at December 31, 2008 and for the fiscal year period then ended (the “Buyer Financial Statements”) and are attached hereto as Schedule 5.7(a).  Buyer’s Financial Statements have been prepared as per U.S. GAAP (as the Parent) and Hungarian accounting standards and translated to US GAAP applied on a consistent basis throughout the periods indicated. Such Buyer Financial Statements present fairly the financial condition and results of operations of the Buyer for the dates or periods indicated thereon.

(c)     Except for (i) security interests and liens on the assets of the Buyer to secure indebtedness of the Parent and/or the Buyer not to exceed $250,000 in the aggregate; (ii) trade payables and accrued expenses incurred in the ordinary course of business, none of which are material, (iii) executory contract obligations under (x) Contracts listed on Schedule 5.12, and/or (y) Contracts not required to be listed on Schedule 5.12, (iv) the liabilities set forth in Schedule 5.7(c) and the (v) the Parent Loan Balance set forth in Schedule 2.2 attached hereto, the Buyer does not have any liabilities or obligations (whether accrued, absolute, contingent, known or otherwise, and whether or not of a nature required to be reflected or reserved against in a balance sheet in accordance with GAAP).  The Parent shall be solely responsible to retire the aforesaid indebtedness secured by the liens on the assets of the Buyer.

 

(d)     Except as otherwise set forth in Schedule 5.7(d), the accounts receivable reflected on the December 31, 2008 balance sheet included in the Buyers Financial Statements referenced in this Section 5.7(a)  and all of the Buyer’s accounts receivable arising since December 31, 2008 (the “Balance Sheet Date”) arose from bona fide transactions in the ordinary course of business, and the goods and services involved have been sold, delivered and performed to the account obligors, and no further filings (with governmental agencies, insurers or others) are required to be made, no further goods are required to be provided and no further services are required to be rendered in order to complete the sales and fully render the services and to entitle the Buyer to collect the accounts receivable in full.  Except as set forth in Schedule 5.7(d), no such account has been assigned or pledged to any other person, firm or corporation, and no defense or set-off to any such account has been asserted by the account obligor or exists.

 

(e)     As of the date of Closing the Buyer has either a positive stockholders equity or capital of not less than United States One Thousand Dollars (USD $1,000.00) equivalent in Hungarian Forinth calculated at the then current rate of exchange.

 

(f)     As of the date of Closing the Parent Loan Balance shall (i) bear  interest calculated at the rate of LIBOR for twelve month United States dollars interbank deposits as fixed by the BBA plus a margin of 3%, such interest to be paid annually in arrears (ii) be due and payable as to principal and any interest accrued on the fifth anniversary of the Closing Date, (iii) not be convertible into or exchangeable for capital shares of the Buyer, and (iv) be subject and subordinated to all creditors of the Buyer and its consolidated Subsidiaries, including the Company.

 

(g)     Except as otherwise set forth in Schedule 5.7(g), the Inventory of the Buyer as of the Closing Date shall consist of items of a quality, condition and quantity consistent with normal seasonally-adjusted Inventory levels of the Buyer and be usable and saleable in the ordinary and usual course of business for the purposes for which intended, except to the extent written down or reserved against on the Closing Date Balance Sheet.  Except as otherwise set forth in Schedule 5.7(g), the Buyer’s Inventory is valued on the Buyer’s books of account in accordance with GAAP (on an average cost basis) at the lower of cost or market, and the value of obsolete materials, materials below standard quality and slow-moving materials have been written down in accordance with GAAP.

(h) Except as provided under the provisions of the agreements described in Schedule 5.7(h), the Buyer has and will have as of the Closing Date legal and beneficial ownership of its Properties, free and clear of any and all Liens.

 

5.8         Absence of Certain Changes.

 

(a)    Except as otherwise set forth in Schedule 5.8(a) attached hereto, since the Balance Sheet Date, there has not been:

 

(i)       any event, circumstance or change that had or might have a material adverse effect on the business, operations, prospects, Properties, financial condition or working capital of the Buyer;

 

(ii)      any damage, destruction or loss (whether or not covered by insurance) that had or might have a material adverse effect on the business, operations, prospects, Properties or financial condition of the Buyer; or

 

(iii)     any material adverse change in the Buyer’s sales patterns, pricing policies, accounts receivable or accounts payable.

 

(b) Except as otherwise set forth in Schedule 5.8(b) attached hereto, since the Balance Sheet Date, the Buyer has not done any of the following:

 

(i)       merged into or with or consolidated with, any other corporation or acquired the business or assets of any Person;

 

(ii)      purchased any securities of any Person;

 

(iii)     created, incurred, assumed, guaranteed or otherwise become liable or obligated with respect to any indebtedness, or made any loan or advance to, or any investment in, any person, except in each case in the ordinary course of business;

 

(iv)     made any change in any existing election, or made any new election, with respect to any tax law in any jurisdiction which election could have an effect on the tax treatment of the Buyer or the Buyer’s business operations;

 

(v)     entered into, amended or terminated any material agreement;

 

(vi)    sold, transferred, leased, mortgaged, encumbered or otherwise disposed of, or agreed to sell, transfer, lease, mortgage, encumber or otherwise dispose of, any Properties except (i) in the ordinary course of business, or (ii) pursuant to any agreement specified in Schedule 5.8(b)(vi);

(vii)   settled any claim or litigation, or filed any motions, orders, briefs or settlement agreements in any proceeding before any court, any Governmental Authority or any arbitrator;

 

(viii)  incurred or approved, or entered into any agreement or commitment to make, any expenditures in excess of $5,000 (other than those arising in the ordinary course of business or those required pursuant to any agreement specified in Schedule 5.8(b)(viii);

 

(ix)     maintained its books of account other than in the usual, regular and ordinary manner in accordance with generally accepted accounting principles and on a basis consistent with prior periods or made any change in any of its accounting methods or practices that would be required to be disclosed under generally accepted accounting principles;

 

(x)      adopted any Plan or Benefit Program or Agreement, or granted any increase in the compensation payable or to become payable to directors, officers or employees (including, without limitation, any such increase pursuant to any bonus, profit-sharing or other plan or commitment), other than merit increases to non-officer employees in the ordinary course of business and consistent with past practice;

 

(xi)     suffered any extraordinary losses or waived any rights of material value;

 

(xii)    made any payment to any Affiliate or forgiven any indebtedness due or owing from any Affiliate to the Buyer;

 

(xiii)   (A) liquidated Inventory or accepted product returns other than in the ordinary course, (B) accelerated receivables, (C) delayed payables, or (D) changed in any material respect the Buyer’s practices in connection with the payment of payables and/or the collection of receivables;

 

(xiv)   engaged in any one or more activities or transactions with an Affiliate or outside the ordinary course of business;

 

(xv)    declared, set aside or paid any dividends, or made any distributions or other payments in respect of its equity securities, or repurchased, redeemed or otherwise acquired any such securities;

 

(xvi)   amended its charter or bylaws;

 

(xvii)  issued any capital stock or other securities, or granted, or entered into any agreement to grant, any options, convertible rights, other rights, warrants, calls or agreements relating to its capital stock; or

 

(xviii) committed to do any of the foregoing.

5.9         Compliance with Laws.  Except as otherwise set forth in Schedule 5.9, the Parent and the Buyer is and has been in compliance in all respects with any and all Legal Requirements applicable to the Buyer, other than failures to so comply that would not have an adverse effect on the business, operations, prospects, Properties or financial condition of the Buyer.  Except as otherwise set forth in Schedule 5.9, the Buyer (x) has not received or entered into any citations, complaints, consent orders, compliance schedules, or other similar enforcement orders or received any written notice from any Governmental Authority or any other written notice that would indicate that there is not currently compliance with all such Legal Requirements, except for failures to so comply that would not have an adverse effect on the business, operations, prospects, Properties or financial condition of the Buyer, and (y) is not in default under, and no condition exists (whether covered by insurance or not) that with or without notice or lapse of time or both would constitute a default under, or breach or violation of, any Legal Requirement or Permit applicable to the Buyer.  Without limiting the generality of the foregoing, the Buyer has not received notice of and there is no basis for, any claim, action, suit, investigation or proceeding that might result in a finding that the Buyer is not or has not been in compliance with Legal Requirements relating to (a) the development, testing, manufacture, packaging, distribution and marketing of products, (b) employment, safety and health, (c) environmental protection, building, zoning and land use and/or (d) the Foreign Corrupt Practices Act and the rules and regulations promulgated there under.

 

5.10       Litigation.  Except as otherwise set forth in Schedule 5.10, there are no claims, actions, suits, investigations or proceedings against the Buyer pending or, to the Knowledge of the Parent and the Buyer, threatened in any court or before or by any Governmental Authority, or before any arbitrator, that might have an adverse effect (whether covered by insurance or not) on the business, operations, prospects, Properties or financial condition of the Parent and / or the Buyer and there is no basis for any such claim, action, suit, investigation or proceeding.  Schedule 5.10 also includes a true and correct listing of all material actions, suits, investigations, claims or proceedings that were pending, settled or adjudicated during the past three financial years and up to the date of Closing.

 

5.11       Real Property.

 

(a)           Schedule 5.11(a) sets forth a list of all real property or any interest therein (including without limitation any option or other right or obligation to purchase any real property or any interest therein) currently owned, or ever owned, by the Buyer, in each case setting forth the street address and legal description of each property covered thereby (the “Owned Premises”).

 

(b)           Schedule 5.11(b) sets forth a list of all leases, licenses or similar agreements relating to the Buyer’s use or occupancy of real estate owned by a third Party (“Leases”), true and correct copies of which have previously been furnished to Buyer, in each case setting forth (i) the lessor and lessee thereof and the commencement date, term and renewal rights under each of the Leases, and (ii) the street address and legal description of each property covered thereby (the “Leased Premises”).  The Leases and all guaranties with respect thereto, are in full force and effect and have not been amended in writing or otherwise, and no Party thereto is in default or breach under any such Lease.  No event has occurred which, with the passage of time or the giving of notice or both, would cause a material breach of or default under any of such Leases.  Neither the Buyer nor its agents or employees have received written notice of any claimed abatements, offsets, defenses or other bases for relief or adjustment.

 

(c)           With respect to each Owned Premises and Leased Premises, as applicable:  (i) the Buyer has good, marketable and insurable free simple interest in the Owned Premises and a valid leasehold interest in the Leased Premises, free and clear of any Liens, encumbrances, covenants and easements or title defects that have had or could have an adverse effect on the Buyer’s use and occupancy of the Owned Premises and the Leased Premises; (ii) the portions of the buildings located on the Owned Premises and the Leased Premises that are used in the business of the Buyer are each in good repair and condition, normal wear and tear excepted, and are in the aggregate sufficient to satisfy the Buyer’s current and reasonably anticipated normal business activities as conducted thereon and, to the Knowledge of the Buyer, there is no latent material defect in the improvements on any Owned Premises, structural elements thereof, the mechanical systems (including, without limitation, all heating, ventilating, air conditioning, plumbing, electrical, utility and sprinkler systems) therein, the utility system servicing each Owned Premises and the roofs which have not been disclosed to Buyer in writing prior to the date of this Agreement; (iii) each of the Owned Premises and the Leased Premises (a) has direct access to public roads or access to public roads by means of a perpetual access easement, such access being sufficient to satisfy the current transportation requirements of the business presently conducted at such parcel; and (b) is served by all utilities in such quantity and quality as are necessary and sufficient to satisfy the current normal business activities conducted at such parcel; and (iv) the Buyer has not received notice of (a) any condemnation, eminent domain or similar proceeding affecting any portion of the Owned Premises or the Leased Premises or any access thereto, and, to the Knowledge of the Buyer, no such proceedings are contemplated, (b) any special assessment or pending improvement liens to be made by any governmental authority which may affect any of the Owned Premises or the Leased Premises, or  (c) any violations of building codes and/or zoning ordinances or other governmental regulations with respect to the Owned Premises or the Leased Premises.

 

5.12       Contracts.

 

(a)        Except as otherwise set forth in Schedule 5.12, the Buyer is not a Party to or bound by any of the following, whether written or oral:

 

(i)             any Contract that cannot by its terms be terminated by the Buyer with 30 days’ or less notice without penalty or whose term continues beyond one year after the date of this Agreement;

 

(ii)           Contract or commitment for capital expenditures by the Buyer in excess of $25,000 per calendar quarter in the aggregate;

 

(iii)           lease or license with respect to any Properties, real or personal, whether as landlord, tenant, licensor or licensee;

(i)           the breach of any of the representations and warranties of the Parent or the Buyer forth in this Agreement, or

(ii)          the failure by the Parent or the Buyer to perform or satisfy in any material respect their covenants and agreements set forth in this Agreement or in any Exhibit hereto or document or certificate delivered by the Parent or the Buyer on the Closing Date.

Notwithstanding the foregoing, neither the Parent nor the Buyer shall have any liability under this Agreement to indemnify under either (A) clause (iii) of Section 8.3.2, or (B) clause (i) of Section 8.3.2 against breaches of the provisions of Section 5.5 (clauses (ii), (iii), (iv) and (v)), of Section 5.6, and Section 5.7 through Section 5.23 (collectively the “Business Indemnities”), in each case unless the indemnifying Party receives notice in writing from Company Stockholders of Company Stockholders' claim under said indemnity on or before that date which shall be eighteen (18) months following the Closing Date (the “Business Indemnity Period”).  Said limitations shall not apply to any breaches of or obligations to comply with any of the other provisions of this Agreement, regardless of whether such breach or obligation also constitutes a breach or obligation under any of the provisions specifically listed in this Section 10.2(b).

(c)           Limitations on Liability.  The Parent and the Buyer shall be obligated to indemnify as and to the extent set forth in Section 10.3 of this Agreement only if the aggregate of all of their liability under such indemnity obligations exceeds $50,000, it being understood that such $50,000 figure is to serve as a “trigger” for the indemnification and not as a “deductible” (for example, if the indemnity claims for which the Parent and the Buyer would, but for the provisions of this paragraph (c), be liable aggregate $51,000, the Parent and the Buyer would then be liable for the full $51,000, and not just $1,000).

(d)          Payment of Damages.  In the event that the Parent and/or the Buyer shall become liable under this Agreement to indemnify the Company Stockholders or the Buyer, as applicable, for Damages, the Parent shall pay such Damages to the Company Stockholders or the Buyer, as applicable, in cash.

10.3        Indemnified Party and Indemnifying Party.  For purposes of this Section 10.3, a Party making a claim for indemnity under Section 10.1 or Section 10.2 is hereinafter referred to as an “Indemnified Party” and the Party against whom such claim is asserted is hereinafter referred to as the “Indemnifying Party.”  All claims by any Indemnified Party shall be asserted and resolved in accordance with the following provisions.  If any claim or demand for which an Indemnifying Party would be liable to an Indemnified Party is asserted against or sought to be collected from such Indemnified Party by such third Party, said Indemnified Party shall with reasonable promptness notify in writing the Indemnifying Party of such claim or demand stating with reasonable specificity the circumstances of the Indemnified Party’s claim for indemnification; provided, however, that any failure to give such notice will not waive any rights of the Indemnified Party except to the extent the rights of the Indemnifying Party are actually prejudiced or to the extent that any applicable period set forth in Section 10.1 and Section 10.2(b) has expired without such notice being given.  After receipt by the Indemnifying Party of such notice, then upon reasonable notice from the Indemnifying Party to the Indemnified Party, or upon the request of the Indemnified Party, the Indemnifying Party shall defend, manage and conduct any proceedings, negotiations or communications involving any claimant whose claim is the subject of the Indemnified Party’s notice to the Indemnifying Party as set forth above, and shall take all actions necessary, including but not limited to the posting of such bond or other security as may be required by any Governmental Authority, so as to enable the claim to be defended against or resolved without expense or other action by the Indemnified Party.  Upon request of the Indemnifying Party, the Indemnified Party shall, to the extent it may legally do so and to the extent that it is compensated in advance by the Indemnifying Party for any costs and expenses thereby incurred,

 

 

(i)   take such action as the Indemnifying Party may reasonably request in connection with such action,

(ii)  allow the Indemnifying Party to dispute such action in the name of the Indemnified Party and to conduct a defense to such action on behalf of the Indemnified Party, and

(iii)          render to the Indemnifying Party all such assistance as the Indemnifying Party may reasonably request in connection with such dispute and defense.

10.4        Resolution of Disputes.

(a)           All disputes, claims or controversies arising out of or relating to this Agreement, or any agreement executed and delivered pursuant hereto, or the negotiation, breach, validity or performance hereof, or the transactions contemplated hereby which cannot be resolved by good faith negotiations, shall be exclusively submitted to final and binding arbitration in London England before a panel of three arbitrators appointed by the International Chamber of Commerce; provided, that if any Party has no adequate remedy at law he or it may seek emergency injunctive relief or specific performance before any court of competent jurisdiction in Hungary or the United States.  The decision and award of the arbitrators shall be enforceable in any court of competent jurisdiction in the United States and Hungary.

(b)           Subject to the availability of the arbitration panel, the arbitration shall commence within ninety (90) days of the date on which a written demand for arbitration is filed by any Party hereto.  In connection with the arbitration proceeding, the arbitrators shall have the power to order the production of documents by each Party and any third-Party witnesses.  In connection with any arbitration, each Party shall provide to the other, no later than seven (7) business days before the date of the arbitration, the identity of all persons that may testify at the arbitration and a copy of all documents that may be introduced at the arbitration or considered or used by a Party’s witness or expert.  The arbitrators’ decision and award shall be made and delivered within ninety (90) days of the commencement of the arbitration.  The arbitrators’ decision shall set forth a reasoned basis for any award of damages or finding of liability.  The arbitrators shall not have power to award damages in excess of actual compensatory damages and shall not multiply actual damages or award punitive damages or any other damages that are specifically excluded under this Agreement, and each Party hereby irrevocably waives any claim to such damages.

 

 

(c)           The Parties covenant and agree that they will participate in the arbitration in good faith and that they will, except as provided below, (A) bear their own attorneys’ fees, costs and expenses in connection with the arbitration, and (B) share equally in the fees and expenses of the arbitration, including forum fees, the fees of the arbitrators and the cost of the official transcript of the proceedings.  The arbitrators may in their discretion assess costs and expenses (including the reasonable legal fees and expenses of the prevailing Party) against any Party to the proceeding.  Any Party unsuccessfully refusing to comply with an order of the arbitrators shall be liable for costs and expenses, including attorneys’ fees, incurred by the other Party in enforcing the award.  This Section 10.4 applies equally to requests for temporary, preliminary or permanent injunctive relief, except that in the case of temporary or preliminary injunctive relief any Party may proceed in court without prior arbitration for the purpose of avoiding immediate and irreparable harm or to enforce its rights under any non-competition covenants.

10.5.  Confidentiality.

(a)               Prior to the Closing, Buyer shall, and shall cause its Affiliates and its and their employees, agents, accountants, legal counsel and other representatives and advisers to, hold in strict confidence all, and not divulge or disclose any, information of any kind concerning the Company and its business; provided, however, that the foregoing obligation of confidence shall not apply to (i) information that is or becomes generally available to the public other than as a result of a disclosure by Buyer or its Affiliates or any of its or their employees, agents, accountants, legal counsel or other representatives or advisers, (ii) information that is or becomes available to Buyer or its Affiliates or any of its or their employees, agents, accountants, legal counsel or other representatives or advisers on a non-confidential basis prior to its disclosure by Buyer or its Affiliates or any of its or their employees, agents, accountants, legal counsel or other representatives or advisers and (iii) information that is required to be disclosed by Buyer or its Affiliates or any of its or their employees, agents, accountants, legal counsel or other representatives or advisers as a result of any applicable law, rule or regulation of any Governmental Authority; and provided further that Buyer promptly shall notify the Company of any disclosure pursuant to clause (iii) of this Section 10.5.(a); and, provided, further, that the foregoing obligation of confidence shall not apply to the furnishing of information by Buyer in bona fide discussions or negotiations with prospective lenders.

(b)              The Company and the Company Stockholders shall, and shall cause its or his Affiliates and their respective employees, agents, accountants, legal counsel and other representatives and advisers to, hold in strict confidence all, and not divulge or disclose any, information of any kind concerning the transactions contemplated by this Agreement, the Company, the Company Stockholders or their respective businesses; provided, however, that the foregoing obligation of confidence shall not apply to (i) information that is or becomes generally available to the public other than as a result of a disclosure by the Company, the Company Stockholders or its or his Affiliates or any of their respective employees, agents, accountants, legal counsel or other representatives or advisers, (ii) information that is or becomes available to the Company, the Company Stockholders or its or his Affiliates or any of their respective employees, agents, accountants, legal counsel or other representatives or advisers after the Closing on a non-confidential basis prior to its disclosure by the Company, the Company Stockholders or its or his Affiliates or any of their respective employees, agents, accountants, legal counsel or other representatives or advisers and (iii) information that is required to be disclosed by the Company, the Company Stockholders or its or his Affiliates or any of their respective employees, agents, accountants, legal counsel or other representatives or advisers as a result of any applicable law, rule or regulation of any Governmental Authority; and provided further that the Company shall promptly shall notify Buyer of any disclosure pursuant to clause (iii) of this Section 10.3(b).

 

 

10.6.       Brokers.  Regardless of whether the Closing shall occur, (i) the Company Stockholders and the Company shall indemnify and hold harmless Buyer from and against any and all liability for any brokers or finders’ fees arising with respect to brokers or finders retained or engaged by the Company or the Company Stockholders in respect of the transactions contemplated by this Agreement, and (ii) Buyer shall indemnify and hold harmless the Company Stockholders from and against any and all liability for any brokers’ or finders’ fees arising with respect to brokers or finders retained or engaged by Buyer in respect of the transactions contemplated by this Agreement.

10.7        Costs and Expenses.  Each of the Parties to this Agreement shall bear his or its own expenses incurred in connection with the negotiation, preparation, execution and closing of this Agreement, however, Buyer shall be responsible for and shall discharge all Transaction Expenses by and on behalf of the Company Stockholders and or/the Company pursuant to Section 6.20.

10.8        Notices.  Any notice, request, instruction, correspondence or other document to be given hereunder by any Party hereto to another (herein collectively called “Notice”) shall be in writing and delivered personally or mailed by registered or certified mail, postage prepaid and return receipt requested, or by facsimile, as follows:

IF TO BUYER:     Solar Thin Films, Inc.

25 Highland Boulevard, Dix Hills, New York 11746

Attn:  Bob Rubin, Chairman of the Board

email: ***@***

 

 

 

THE COMPANY STOCKHOLDERS:

 

Istvan Krafcsik

H-1021 Budapest, Kuruclesiu 40. Hungary

Fax No.   ###-###-####

 

With a copy to:

Dessewffy David

H-1061

Budapest, Andrassy ut.43

Hungary

Attn:  Dr. David Aliz

Fax No. +36 1 ###-###-####

email: ***@***

 

Each of the above addresses for notice purposes may be changed by providing appropriate notice hereunder.  Notice given by personal delivery or registered mail shall be effective upon actual receipt.  Notice given by telecopier shall be effective upon actual receipt if received during the recipient’s normal business hours, or at the beginning of the recipient’s next normal business day after receipt if not received during the recipient’s normal business hours.  All Notices by telecopier shall be confirmed by the sender thereof promptly after transmission in writing by registered mail or personal delivery.  Anything to the contrary contained herein notwithstanding, notices to any Party hereto shall not be deemed effective with respect to such Party until such Notice would, but for this sentence, be effective both as to such Party and as to all other persons to whom copies are provided above to be given.

 

10.9        Governing Law.  The provisions of this agreement and the documents delivered pursuant hereto shall be governed by and construed in accordance with the laws of the State of New York (excluding any conflict of law rule or principle that would refer to the laws of another jurisdiction).  Notwithstanding the foregoing, the laws of Hungary shall govern the Share Capital Increase and the Employment Agreements.

10.10.     Entire Agreement; Amendments and Waivers.  This Agreement, together with all exhibits and schedules attached hereto, constitutes the entire agreement between and among the Parties hereto pertaining to the subject matter hereof and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, of the Parties, including, without limitation, the Prior Agreement, and there are no warranties, representations or other agreements between the Parties in connection with the subject matter hereof except as set forth specifically herein or contemplated hereby.  No supplement, modification or waiver of this Agreement shall be binding unless executed in writing by the Party to be bound thereby.  No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (regardless of whether similar), nor shall any such waiver constitute a continuing waiver unless otherwise expressly provided.

 

 

10.11.     Binding Effect and Assignment.  This Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective permitted successors and assigns; but neither this Agreement nor any of the rights, benefits or obligations hereunder shall be assigned, by operation of law or otherwise, by any Party hereto without the prior written consent of the other Party; provided, however, that the Buyer may assign its rights hereunder to any lender to the Buyer or the Parent.  Nothing in this Agreement, express or implied, is intended to confer upon any person or entity other than the Parties hereto and their respective permitted successors and assigns, any rights, benefits or obligations hereunder.

10.12      Remedies.  The rights and remedies provided by this Agreement are cumulative, and the use of any one right or remedy by any Party hereto shall not preclude or constitute a waiver of its right to use any or all other remedies.  Such rights and remedies are given in addition to any other rights and remedies a Party may have by law, statute or otherwise.

10.13      Exhibits and Schedules.  The exhibits and Schedules referred to herein are attached hereto and incorporated herein by this reference.  Disclosure of a specific item in any one Schedule shall be deemed restricted only to the Section to which such disclosure specifically relates except where (i) there is an explicit cross-reference to another Schedule, and (ii) Buyer could reasonably be expected to ascertain the scope of the modification to a representation intended by such cross-reference.

10.14      Multiple Counterparts.  This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

10.15      References and Construction.

(a)         Whenever required by the context, and is used in this Agreement, the singular number shall include the plural and pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, neuter, singular or plural, as the identification the person may require.  References to monetary amounts, specific named statutes and generally accepted accounting principles are intended to be and shall be construed as references to United States dollars, statutes of the United States of the stated name and United States generally accepted accounting principles, respectively, unless the context otherwise requires.

(b)         The provisions of this Agreement shall be construed according to their fair meaning and neither for nor against any Party hereto irrespective of which Party caused such provisions to be drafted.  Each of the Parties acknowledge that it has been represented by an attorney in connection with the preparation and execution of this Agreement.

10.16      Survival.  Any provision of this Agreement which contemplates performance or the existence of obligations after the Closing Date, and any and all representations and warranties set forth in this Agreement, shall not be deemed to be merged into or waived by the execution and delivery of the instruments executed at the Closing, but shall expressly survive Closing and shall be binding upon the Party or Parties obligated thereby in accordance with the terms of this Agreement, subject to any limitations expressly set forth in this Agreement.

 

 

10.17      Attorneys’ Fees.  In the event any suit or other legal proceeding is brought for the enforcement of any of the provisions of this Agreement, the Parties hereto agree that the prevailing Party or Parties shall be entitled to recover from the other Party or Parties upon final judgment on the merits reasonable attorneys’ fees (and sales taxes thereon, if any), including attorneys’ fees for any appeal, and costs incurred in bringing such suit or proceeding.

10.18      Risk of Loss.  Prior to the Closing, the risk of loss of damage to, or destruction of, any and all of a Party’s assets, including without limitation the Properties, shall remain with such party, and the legal doctrine known as the “Doctrine of Equitable Conversion” shall not be applicable to this Agreement or to any of the transactions contemplated hereby.

Capitalized terms used in this Agreement are used as defined in this Article XI or elsewhere in this Agreement.

 

11.1        Affiliate. The term “Affiliate” means with respect to any Person, any other Person directly or indirectly controlling (including, but not limited to, all directors and officers of such Person), controlled by, or under direct or indirect common control with, such Person.  A Person shall be deemed to control another Person if such Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such other Person, whether through the ownership of voting securities, by contract or otherwise.

11.2        Buyer Liquidity Event.  The term “Buyer Liquidity Event” shall mean any one of the following events:

 (a)         a Change of Control of the Buyer, for consideration payable in whole or in part in cash, or

 (b)         an initial public offering of the share capital of the Buyer, or

 (c)         the merger of the Buyer with or into an inactive corporation that is publicly traded on a United States or European securities exchange (a “Shell Corporation”) or the exchange of 100% of the share capital of the Buyer for a controlling interest in a Shell Corporation, in either case, coupled with a simultaneous cash financing of not less than United States Five Million Dollars (USD $5,000,000), or

 (d)         the distribution or dividend of 100% of the share capital of the Buyer owned by the Parent to the stockholders of the Parent, as a result of which the Buyer shall become a corporation that is publicly traded on a United States securities exchange, coupled with a simultaneous cash financing for the Buyer of not less than United States Five Million Dollars (USD $5,000,000).

 

 

11.3        Exhibits.  The term “Exhibits” shall mean any or all of the exhibits to this Agreement and any and all other agreements, instruments or documents required or expressly provided under this Agreement to be executed and delivered in connection with the transactions contemplated by this Agreement.

11.4        Subject Company Quotas. The term "Subject Company Quotas" shall have the meaning of hundred percent of the quota in the capital stock of the Company

11.5        Confidential Information.  The term “Confidential Information” shall mean confidential data and confidential information relating to the business of the Company (which does not rise to the status of a Trade Secret under applicable law) which is or has been disclosed to Company Stockholders or of which Company Stockholders became aware as a consequence of or through his employment with the Company and which has value to the Company and is not generally known to the competitors of the Company.  Confidential Information shall not include any data or information that (i) has been voluntarily disclosed to the general public by the Company or its Affiliates, (ii) has been independently developed and disclosed to the general public by others, or (iii) otherwise enters the public domain through lawful means.

11.6        Change of Control.  The term “Change of Control” shall mean the sale of Buyer and its consolidated Subsidiaries (including the Company), pursuant to a sale of the Buyer Shares or the assets and properties of Buyer and its consolidated Subsidiaries (including the Company) to any Person who is not an Affiliate of the Parent or its Affiliates (each an “Unaffiliated Third Party”).

11.7        Contracts. The term “Contracts,” when described as being those of or applicable to any person, shall mean any and all contracts, agreements, franchises, understandings, arrangements, leases, licenses, registrations, authorizations, easements, servitudes, rights of way, mortgages, bonds, notes, guaranties, liens, indebtedness, approvals or other instruments or undertakings to which such person is a Party or to which or by which such person or the property of such person is subject or bound, excluding any Permits.

11.8        Damages.  The term “Damages” shall mean any and all damages, liabilities, obligations, penalties, fines, judgments, claims, deficiencies, losses, costs, expenses and assessments (including without limitation income and other taxes, interest, penalties and attorneys’ and accountants’ fees and disbursements).

11.9        "Excess Cash" The term “Excess Cash” means, at the end of any financial year of the Buyer and its Subsidiaries, the aggregate amount of cash and marketable securities that are retained by the Buyer and its Subsidiaries which is in excess of the aggregate amount of funds required for the working capital needs of the Buyer and its Subsidiaries, the purchase or lease of capital equipment and other related expenditures that are anticipated in good faith by the Board of Directors of the Buyer to be required by the Buyer and its Subsidiaries for the next succeeding financial year.

 

 

11.10      Financial Statements.  The term “Financial Statements” shall mean any or all of the financial statements, including balance sheets and related statements of income and statements of changes in financial position and the accompanying notes thereto, of the company’s business prepared in accordance with generally accepted accounting principles consistently applied, except as may be otherwise provided herein.

11.11      “Funded Indebtedness.  “Funded Indebtedness” shall mean the aggregate amount (including the current portions thereof) of all (i) indebtedness of a company for money borrowed from others, capital lease obligations, dividends payable to a company’s Stockholders, bonus payables to employees, and purchase money indebtedness of a company, (ii) indebtedness of the type described in clause (i) above guaranteed, directly or indirectly, in any manner by the company, or in effect guaranteed, directly or indirectly, in any manner by the company, through an agreement, contingent or otherwise, to supply funds to, or in any other manner invest in, the debtor, or to purchase indebtedness, or to purchase and pay for property if not delivered or to pay for services if not performed, primarily for the purpose of enabling the company to make payment of the indebtedness or to assure the owners of the indebtedness against loss, but excluding endorsements of checks and other instruments in the ordinary course, (iii) indebtedness of the type described in clause (i) above secured by any Lien upon property owned by the company, even though the company has not in any manner become liable for the payment of such indebtedness and (iv) interest expense accrued but unpaid, and all prepayment premiums, on or relating to any of such indebtedness. . Contracts evidencing its Funded Indebtedness are set forth on Schedule 11.7 hereto

11.12      GAAP  The term “GAAP” means U.S. generally accepted accounting principles.

11.13      Governmental Authorities.  The term “Governmental Authorities” shall mean any nation or country (including but not limited to the United States) and any commonwealth, territory or possession thereof and any political subdivision of any of the foregoing, including but not limited to courts, departments, commissions, boards, bureaus, agencies, ministries or other instrumentalities.

11.14      Hazardous Material.  The term “Hazardous Material” shall mean all or any of the following: (a) substances that are defined or listed in, or otherwise classified pursuant to, any applicable laws or regulations as “hazardous substances,” “hazardous materials,” “Hazardous wastes,” “toxic substances” or any other formulation intended to define, list or classify substances by reason of deleterious properties such as ignitability, corrosivity, reactivity, carcinogenicity, reproductive toxicity or “EP toxicity”; (b) oil, petroleum or petroleum derived substances, natural gas, natural gas liquids or synthetic gas and drilling fluids, produced waters and other wastes associated with the exploration, development or production of crude oil, natural gas or geothermal resources; (c) any flammable substances or explosives or any radioactive materials; and (d) asbestos in any form or electrical equipment which contains any oil or dielectric fluid containing levels of polychlorinated biphenyls in excess of fifty parts per million.

 

 

11.15      Inventory.  The term “Inventory” shall mean all goods, merchandise and other personal property owned and held for sale, and all raw materials, works-in-process, materials and supplies of every nature which contribute to the finished products of a company in the ordinary course of its business, specifically excluding, however, damaged, defective or otherwise unsaleable items.

11.16      Knowledge of a company.  The term “Knowledge of the company” shall mean the actual knowledge of any of the directors, officers or managerial personnel of the company with respect to the matter in question, and such knowledge of the directors, officers or managerial personnel of the company reasonably should have obtained upon diligent investigation and inquiry into the matter in question.

11.17      Legal Requirements.  The term “Legal Requirements,” when described as being applicable to any person, shall mean any and all laws (statutory, judicial or otherwise), ordinances, regulations, judgments, orders, directives, injunctions, writs, decrees or awards of, and any Contracts with, any Governmental Authority, in each case as and to the extent applicable to such person or such person’s business, operations or properties.

11.18      Minority.  The term “Minority” means and includes all of the Company Stockholders and their Permitted Transferees (as that term is defined in the Shareholders Agreement).

11.19      Parent Public Filings   The term “Parent Public Filings” means and includes all of the filings by the Parent with the United States Securities and Exchange Commission under the United States Securities Act of 1933, as amended (the “33 Act”), and the United States Securities Exchange Act of 1934, as amended (the “34 Act”), for all periods from and after January 1, 2005, including, without limitation, all (a) registration statements on Form S-1 or other forms for registering securities under the 33 Act, (b) all Form 10KSB Annual Reports, Form 8-K Interim Report, Form 10-Q Quarterly Report, and all proxy statements on Form 14A and other filings under the 34 Act.

11.20      Parent Qualified Equity Financing.  The term Parent Qualified Equity Financing” shall mean one or more public or private sales and issuances by the Parent of its Common Stock, convertible notes or convertible preferred stock, as a result of which the Parent shall receive aggregate gross proceeds of United States Ten Million Dollars (USD $10,000,000) or more.

11.21      Permits. The term “Permits” shall mean any and all permits, rights, approvals, licenses, authorizations, legal status, orders or Contracts under any Legal Requirement or otherwise granted by any Governmental Authority.

11.22      Person.  The term “Person” shall mean any individual, partnership, joint venture, firm, corporation, association, limited liability company, trust or other enterprise or any governmental or political subdivision or any agency, department or instrumentality thereof.

 

 

11.23      Product.  The term “Product” shall mean each product, repair process or service under development, developed, manufactured, licensed, distributed or sold by the Party and any other products in which the Party has any proprietary rights or beneficial interest.

11.24      Properties.  The term “Properties” shall mean any and all properties and assets (real, personal or mixed, tangible or intangible) owned or Used by the Party.

11.25      Real Property.  The term “Real Property” shall mean the real property Used by the Party in the conduct of its business.

11.26      Regulations.  The term “Regulations” shall mean any and all regulations promulgated by the Department of the Treasury pursuant to the Internal Revenue Code.

11.27      Subsidiary.  The term “Subsidiary” shall mean any Person of which a majority of the outstanding voting securities or other voting equity interests are owned, directly or indirectly, by the Company.

11.28      Trade Secrets.  The term “Trade Secrets” shall mean information of a company including, but not limited to, technical or nontechnical data, formulas, patterns, compilations, programs, financial data, financial plans, product or service plans or lists of actual or potential customers or suppliers which (i) derives economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

11.29      Used.  The term “Used” shall mean, with respect to the Properties, Contracts or Permits of a company, those owned, leased, licensed or otherwise held by such company which were acquired for use or held for use by the company in connection with the company’s business and operations, whether or not reflected on the company’s books of account.

 

 

IN WITNESS WHEREOF, the Parties hereto have executed this Stock Exchange Agreement as of the date first written above.