false 0000923601 SINGING MACHINE CO INC 0000923601 2024-06-11 2024-06-11 iso4217:USD xbrli:shares iso4217:USD xbrli:shares

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

 

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): June 11, 2024

 

THE SINGING MACHINE COMPANY, INC.

(Exact name of registrant as specified in charter)

 

Delaware   001-41405   95-3795478

(State or other jurisdiction

of incorporation)

 

(Commission

File Number)

 

(IRS Employer

Identification No.)

 

6301 NW 5th Way, Suite 2900

Fort Lauderdale, FL 33309

(Address of principal executive offices) (Zip Code)

 

(954) 596-1000

(Registrant’s telephone number, including area code)

 

Not Applicable

(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
   
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
   
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
   
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common stock, par value $0.01 per share   MICS   The Nasdaq Stock Market LLC (The Nasdaq Capital Market)

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).

 

Emerging growth

 

If an emerging growth company, indicate by check mart if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

 

 

 

 

 

Forward Looking Statements

 

This Current Report on Form 8-K and other reports filed by registrant from time to time with the Securities and Exchange Commission (collectively, the “Filings”) contain or may contain forward-looking statements and information that is based upon beliefs of, and information currently available to, registrant’s management, as well as estimates and assumptions made by registrant’s management. When used in the Filings, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan” or the negative of these terms and similar expressions as they relate to registrant or registrant’s management identify forward-looking statements. Such statements reflect the current view of the registrant with respect to future events and are subject to risks, uncertainties, assumptions and other factors (including the risks contained in the section of this Current Report on Form 8-K entitled “Risk Factors”) relating to the registrant’s industry and registrant’s operations and results of operations. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended or planned.

 

Risks and uncertainties related to the proposed transaction include, among others: the risk that regulatory approvals required for the transaction are not obtained on the proposed terms and schedule or are obtained subject to conditions that are not anticipated; the risk that the financing required to fund the transaction is not obtained; the risk that the other conditions to the closing of the acquisition are not satisfied; potential adverse reactions or changes to business or employee relationships, including those resulting from the announcement or completion of the transaction; uncertainties as to the timing of the transaction; the inability to obtain, or delays in obtaining, the synergies contemplated by the transaction; uncertainty of the expected financial performance of the company following completion of the proposed transaction; the calculations of, and factors that may impact the calculations of, the purchase price in connection with the proposed transaction and the allocation of such purchase price to the net assets acquired in accordance with applicable accounting rules and methodologies; unexpected costs, charges or expenses resulting from the transaction; litigation relating to the transaction; the outcome of pending or potential litigation or governmental investigations; the inability to retain key personnel; and any changes in general economic and/or industry specific conditions. Consequently, all of the forward-looking statements made by the Company, in this and in other documents or statements are qualified by factors, risks and uncertainties, including, but not limited to, those set forth under the headings titled “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors” in the Company’s Transition Report on Form 10-KT for the transition period from April 1, 2023 to December 31, 2023, the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, and other reports filed by the Company with the SEC, which are available at the SEC’s website http://www.sec.gov.

 

You should not place undue reliance on any forward-looking statement, each of which applies only as of the date of this Current Report on Form 8-K. Except as required by law, we undertake no obligation to update or revise publicly any of the forward-looking statements after the date of this Current Report on Form 8-K to conform our statements to actual results or changed expectations, or the results of any revision to these forward-looking statements.

 

Item 1.01 Entry Into A Material Definitive Agreement

 

Asset Purchase Agreement

 

On June 11, 2024, The Singing Machine Company, Inc., a Delaware corporation (the “Company”) and its wholly owned subsidiary SemiCab Holdings, LLC, a Nevada limited liability company (“SemiCab LLC” and collectively with the Company, the “Buyer”) and SemiCab , Inc., a Delaware corporation (“SemiCab” or the “Seller”), entered into an asset purchase agreement (the “Asset Purchase Agreement”) pursuant to which Seller will sell and assign to the Buyer, and the Buyer will purchase and assume from Seller, substantially all the assets, and certain specified liabilities relating to the business of the Seller. Subject to certain exceptions set forth in the Asset Purchase Agreement, the Buyer will not assume the liabilities of the Seller. The closing of the transaction (the “Closing”) is subject to the satisfaction of various conditions, including (i) receipt of all required consents and authorizations from governmental authorities; (2) the Buyer and Seller having entered into an option agreement, granting the Buyer the right to acquire all of the issued and outstanding capital securities of SMCB Solutions Private Limited, a wholly owned subsidiary of the Seller, in consideration for shares of common stock of the Company; (3) the Company consummating a financing transaction for gross proceeds of no less than $1,700,000; (4) the Company having taken action to appoint two designees of the Seller to the Board of Directors of the Company; and (4) the receipt of any required approvals from third parties.

 

2

 

 

SemiCab provides automated optimization services for shippers and carriers using a propriety software platform that employs both machine learning and artificial intelligence technologies. See below for additional information about the business conducted by SemiCab.

 

As consideration for the acquisition, the Company has agreed to issue to Seller: (i) 962,710 shares of its common stock, par value $0.01; (ii) and a twenty percent (20%) membership interest in SemiCab LLC.

 

The Asset Purchase Agreement includes covenants of the parties customary for transactions similar to those contemplated by the Asset Purchase Agreement, including, among others, that the Seller shall conduct and operate its business in in the ordinary course consistent with past practice until the Closing and not engage in certain kinds of activities or transactions during this period.

 

The Seller has agreed, subject to certain exceptions with respect to unsolicited proposals, not to initiate, facilitate, solicit, encourage (including, without limitation, by way of furnishing non-public information) or accept any inquiries regarding, or the making of any proposal or offer that constitutes, or could reasonably be expected to result in, an “acquisition proposal” or engage in, continue or otherwise participate in any discussions, communications or negotiations regarding an acquisition proposal.

 

The Asset Purchase Agreement also includes customary termination provisions including that, in general, either party may terminate the agreement if the transaction has not been consummated by June 30, 2024 or if any governmental authority issues any order, injunction, or judgment that restrains, enjoins or otherwise prohibits or makes the transaction illegal. Likewise, either party may terminate the agreement if the other party has breached any representation, warranty, covenant, obligation or agreement which would reasonably be expected to cause any of the conditions to closing to not be satisfied, subject, in some cases, to the opportunity of the breaching party to cure such breach prior to such date.

 

The Asset Purchase Agreement also contains representations, warranties and indemnification obligations of the parties customary for transactions similar to those contemplated by the Asset Purchase Agreement. Such representations and warranties are made solely for purposes of the Asset Purchase Agreement and, in some cases, may be subject to qualifications and limitations agreed to by the parties in connection with the negotiated terms of the Asset Purchase Agreement and may have been qualified by disclosures that were made in connection with the parties’ entry into the Asset Purchase Agreement.

 

Operating Agreement of SemiCab, LLC

 

Pursuant to the terms of the Asset Purchase Agreement, at the Closing, the Company, SemiCab LLC and SemiCab, will enter into an operating agreement of SemiCab LLC (the “Operating Agreement”) which sets forth the terms and conditions governing the operation and management of SemiCab LLC. As per the Operating Agreement, the Company will make an initial capital contribution of $1,000,000 and have an 80% membership interest in SemiCab, LLC. The Company will make additional contributions into SemiCab, LLC as per certain milestones set forth in the Operating Agreement. These additional contributions are in addition to any other capital contributions that the Company may make, along with other members, in proportion to its membership interest, that are reasonably necessary to any operating, capital, or other expenses relating to the business of SemiCab, LLC.

 

Employment Agreements with SemiCab, LLC

 

Pursuant to the Asset Purchase Agreement, SemiCab LLC will enter into employment agreements with the principals of SemiCab as follows:

 

Ajesh Kapoor will serve as President and Chief Technology Officer of SemiCab for an initial term of three years, provided that the employment may be extended for successive terms of one year if certain specific milestones set forth in the employment agreement are met. Pursuant to the employment agreement, Ajesh Kapoor will be entitled to an annual salary of $140,000 in 2024, $240,000 in 2025 and $300,000 in each of 2026, 2027 and 2028. In addition, for each of 2024 and 2025, Mr. Kapoor will be entitled to stock compensation equal to $50,000. In addition, based on certain milestones set forth in the employment agreement, Mr. Kapoor may be entitled to additional cash and stock based incentive compensation.

 

3

 

 

Ajesh Kapoor is the Founder of SemiCab, a Gartner Cool Vendor in Supply Chain. Prior to SemiCab, Mr. Kapoor was the Vice President of Product Management at GT Nexus, a division of Infor, the world’s largest cloud based B2B multi-enterprise network and execution platform for global trade and supply chain management. At GT Nexus, Mr. Kapoor transformed their Transportation Management System (TMS) product line into a cloud-based multi-modal, multi-enterprise foundation that allows a single platform to orchestrate all domestic and international transportation.

 

Mr. Kapoor has over 25 years of experience in designing and implementing industry-leading supply chain and logistics solutions and building lean market-driven organizations. As Global Head of Supply Chain Advisory Services at Wipro Technologies, Mr. Kapoor built the supply chain services strategy for Retail, CPG and Transportation Industry segments. Prior to that, he was Co-Founder and Chief Technology Officer at GEOCOMtms, a division of Blue Yonder, where he developed and brought to market fleet management solutions that grew to be recognized as the industry leader. Mr. Kapoor previously served as Director of Technical Business Development at CAPS Logistics, a subsidiary of Infor that pioneered network design and multi-modal transportation planning.

 

Mr. Kapoor is an alum of IIT Roorkee and Georgia Tech.

 

Vivek Sehgal will serve as Chief Product Officer for a term of three years, provided that the employment may be extended for successive terms of one year if Mr. Sehgal meets specific milestones set out in the employment agreement. Pursuant to the employment agreement, Mr. Sehgal will be entitled to an annual salary of $105,000 in 2024, $210,000 in 2025, $240,000 in 2026, $270,000 in 2027 and $300,000 in 2028. In addition, as a sign-on bonus, and for each of 2024 and 2025, Mr. Sehgal will be entitled to stock compensation equal to $50,000. In addition, based on the achievement of certain milestones, Mr. Sehgal may be entitled to additional cash and stock-based incentive compensation.

 

Mr. Sehgal is the Chief Product Officer and Co-founder of SemiCab. Mr. Sehgal is a supply chain expert with deep expertise designing and building innovative supply chain planning, execution, and logistics solutions. At SemiCab, Mr. Sehgal ensured that SemiCab’s cloud-based muti-enterprise collaborative transportation platform effectively uses AI, ML and optimization technologies to predict and optimize millions of loads across hundreds of thousands of trucks.

 

Prior to joining SemiCab, Mr. Sehgal worked at Google as a business architect for their supply chain transformation. His earlier roles include supply chain leadership positions at The Home Depot and GE; and building supply chain solutions at GT Nexus (Infor Nexus), Manhattan Associates and i2 Technologies (Blue Yonder).

 

Mr. Sehgal is a graduate of IIM Mumbai.

 

A copy of each of the Asset Purchase Agreement and the Operating Agreement are included as Exhibit 2.1 and Exhibit 10.1 to this Current Report and is hereby incorporated by reference. All references to the Asset Purchase Agreement and the Operating Agreement to this Current Report are qualified, in their entirety, by the text of such exhibits.

 

4

 

 

BUSINESS OF SEMICAB

 

Following the acquisition, the Company intends, through SemiCab, LLC, to continue to conduct the business of SemiCab. The following is a detailed description of SemiCab’s business:

 

Overview

 

SemiCab is primarily engaged in developing proprietary AI-based digital freight technology and providing digital freight services using this technology. SemiCab is focused on the following multi-prong approach:

 

● In the short-term, grow freight volume and improve gross margins

● In the mid-to-long-term, continue to grow into additional global geographies and expand into new product categories that take advantage of our technology foundation.

 

SemiCab’s Product Portfolio

 

Digital Truckload Freight Services—SemiCab offers full truckload transportation services in the U.S. and India, on a contract basis. This product category accounted for approximately 100% of SemiCab’s net sales in the year ended December 31, 2023.

 

SemiCab sells its services directly to enterprise customers.

 

Platform Development and Design

 

Technology development is a key element of SemiCab’s strategic growth plan. Strategic platform development is done in-house from SemiCab’s engineering center in Bengaluru, India and overseen from its corporate headquarters in Atlanta, GA. In addition to new functionality, SemiCab endeavors to improve existing technology and algorithms to manage larger freight volumes, improve network efficiency, and improve features based upon customer feedback.

 

Sales and Marketing

 

SemiCab’s products are marketed and sold through its direct sales team. Sales are recognized upon completion of the services and are made utilizing standard payment terms of approximately 30-45 days.

 

Marketing and customer engagement are key elements in the B2B digital freight space. Historically, a significant percentage of SemiCab’s customer acquisition has been through current customer referrals and industry group support. SemiCab continues to focus its marketing efforts on growing brand awareness among its target customer demographic, optimizing marketing investments, and executing an integrated marketing strategy. SemiCab has also implemented online marketing, social media, and digital analytics tools, which allows it to better measure the performance of its marketing activities, learn from its customers, and receive valuable insights into industry and competitor activities.

 

SemiCab maintains a 24/7 internal customer service department that responds to customer inquiries, investigates, and resolves issues, and is available to assist customers and partners.

 

Competition

 

Digital freight industry has many participants, none of which have a dominant market share. SemiCab competes with a number of different companies including traditional freight brokers, digital freight brokers, and asset-based truckload carriers providing contract carriage services on a point-to-point basis.

 

The primary methods of competition in the industry consist of brand positioning, technological innovation, service quality, and price. SemiCab’s competitive strength is driven by its collaborative transportation technology that orchestrates transportation across its customers to provide a more efficient and more reliable service.

 

Intellectual Property

 

SemiCab relies on a combination of word and design mark, trademarks and trade secrets to protect its intellectual property. The duration of its trademark registrations varies from country to country. However, trademarks are generally valid and may be renewed indefinitely as long as they are in use and/or their registrations are properly maintained.

 

5

 

 

Customers

 

Sales to SemiCab’s top five customers together comprised approximately 99% and 97% of its net sales for the year ended December 31, 2023, and 2022, respectively. In the year ended December 31, 2023, revenues from four of these customers represented greater than 10% of net sales, at 37%, 17%, 23% and 21% of total net sales. In its fiscal year ended December 31, 2022, revenues from five of these customers represented greater than 10% of net sales, at 33%, 21%, 16%, 13% and 15% of total net sales.

 

Seasonality

 

SemiCab experiences higher seasonal demand for its services, typically beginning in late August, and extending into early December of each calendar year.

 

Regulatory Matters

 

SemiCab designs its products to comply with all applicable mandatory and voluntary safety standards. In the United States, these safety standards are promulgated by federal, state and independent agencies such as the U.S Consumer Product Safety Commission, ASTM International, the Federal Communications Commission, and various states Attorney Generals and state regulatory agencies.

 

Human Capital Resources

 

As of March 31, 2024, SemiCab had 5 full-time employees, 1 of which was engaged in engineering and product development, 1 in sales and marketing, 2 in customer support or general operations and 1 in general administration and finance. All of SemiCab employees will become employees of SemiCab LLC.

 

RISK FACTORS RELATED TO SEMICAB’S BUSINESS

 

Below are risk factors relating to the business of SemiCab. You should carefully consider the risks described below together with all of the other information included in this report before making an investment decision with regard to our securities. If any of the following risks actually occurs, our business, financial condition or results of operations could be harmed. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.

 

General Business Risks

 

The transportation industry historically has experienced cyclical fluctuations in financial results due to economic recessions, downturns in business cycles of SemiCab’s customers, interest rate fluctuations, currency fluctuations, and other economic factors beyond SemiCab’s control.

 

● Decrease in volumes: A reduction in overall freight volumes in the marketplace may reduce opportunities for growth. The market may be impacted by supply chain disruptions or overall economic conditions. In addition, if a downturn in SemiCab’s customers’ business cycles causes a reduction in the volumes of freight shipped by those customers, SemiCab’s operating results could be adversely affected. During 2022 and 2023, SemiCab experienced a decline in volumes as shippers struggled with elevated inventory levels and consumer demand was negatively impacted by inflation and macroeconomic uncertainty. These volume declines have also driven declining freight rates.

 

● Credit risk and working capital: Some of SemiCab’s customers may face economic difficulties and may not be able to pay for services rendered by SemiCab, and some may go out of business. In addition, some customers may be slow payers and unable to pay, which may cause working capital needs to increase.

 

6

 

 

● Transportation provider failures: A significant number of SemiCab’s contracted transportation providers may go out of business, which would result in SemiCab being unable to secure sufficient equipment or other transportation services to meet its commitments to its customers.

 

● Expense management: SemiCab may not be able to appropriately adjust its expenses to changing market demands. In periods of rapid change, it may be difficult to match its staffing levels to its business needs. Higher carrier prices may result in decreased adjusted gross profit margin and increases in working capital. Carriers can be expected to charge higher prices if market conditions warrant or to cover higher operating expenses. SemiCab’s adjusted gross profits and income from operations may decrease if SemiCab is unable to increase its pricing to its customers. Increased demand for over the road transportation services and changes in regulations may reduce available capacity and increase motor carrier pricing. In the event market conditions change and its contracted rates are below market rates, SemiCab may be required to provide transportation services at a loss. As its volumes increase or SemiCab increases freight rates charged to its customers, the resulting increase in revenues may increase its working capital needs due to its business model, which generally has a higher length of days sales outstanding than days payables outstanding. Changing fuel costs and interruptions of fuel supplies may have an impact on its adjusted gross profit margin. In its truckload transportation business, fluctuating fuel prices may result in a decreased adjusted gross profit margin. While its different pricing arrangements with customers and contracted motor carriers make it very difficult to measure the precise impact, SemiCab believes fuel costs essentially act as a pass-through cost to its truckload business.

 

SemiCab’s dependence on third parties to provide equipment and services may impact the delivery and quality of its transportation and logistics services. SemiCab depends on independent third parties to provide trucking services and to report certain events to them, including but not limited to, shipment status information and freight claims. These independent third parties may not fulfill their obligations to SemiCab, or SemiCab’s relationship with these parties may change, which may prevent SemiCab from meeting its commitments to its customers. SemiCab’s reliance on these third parties also could cause delays in reporting certain events, including recognizing claims. In addition, if SemiCab is unable to secure sufficient equipment or other transportation services from third parties to meet its commitments to its customers, its operating results could be materially and adversely affected, and its customers could switch to its competitors temporarily or permanently.

 

Many of these risks are beyond SemiCab’s control, including:

 

equipment and driver shortages in the transportation industry, particularly among contracted motor carriers;
changes in regulations impacting transportation;
disruption in the supply or cost of fuel;
the introduction of alternative means of transporting freight; and
unanticipated changes in freight markets.

 

SemiCab faces substantial industry competition.

 

Competition in the digital freight industry is intense and broad-based. SemiCab competes with traditional and non-traditional logistics companies, including transportation providers that own equipment, third-party freight brokers, technology matching services, internet freight brokers, carriers offering logistics services, and on-demand transportation service providers. SemiCab also competes with carriers’ internal sales forces. In addition, customers can bring in-house some of the services SemiCab provides to them. Increased competition could reduce its market opportunity and create downward pressure on freight rates. Continued rate pressure may adversely affect SemiCab’s adjusted gross profits and income from operations. In the event market conditions change and SemiCab’s contracted rates are below market rates, it may be required to provide transportation services at a loss.

 

SemiCab earnings may be affected by seasonal changes or significant disruptions in the transportation industry. Results of operations for the industry generally show a seasonal pattern as customers reduce shipments during and after the winter holiday season. SemiCab believes this historical pattern has been the result of, or influenced by, numerous factors, including national holidays, weather patterns, consumer demand, economic conditions, and other similar and subtle forces. Although seasonal changes in the transportation industry have not had a significant impact on its cash flow or results of operations, SemiCab expects this trend to continue, and it cannot guarantee it will not adversely impact SemiCab in the future. The transportation industry may also be significantly impacted by disruptions such as the availability of transportation equipment, as well as factors such as labor shortages, fuel prices, shifts in consumer demand toward more locally sourced products, and regulatory changes. These disruptions may impact the growth rates within the global logistics industry and SemiCab’s ability to provide transportation services for its customers, each of which may adversely impact its results of operations and operating cash flows.

 

7

 

 

SemiCab relies on technology to operate its business.

 

SemiCab has internally developed the majority of its operating systems and also relies on technology provided by third parties. Its continued success is dependent on its systems continuing to operate and to meet the changing needs of its customers and users. The continued automation of existing processes and usage of third-party technology and cloud network capacity will require adaptation and adjustments that may increase its exposure to cybersecurity risks and system availability reliance. SemiCab relies on its technology staff and third-party vendors to successfully implement changes to, and to maintain, its operating systems in an efficient manner. If SemiCab fails to maintain, protect, and enhance its operating systems, it may be at a competitive disadvantage and lose customers.

 

As demonstrated by recent material and high-profile data security breaches, computer malware, viruses, computer hacking, and phishing attacks have become more prevalent, and may occur on SemiCab’s and operating systems. SemiCab cannot guarantee future attacks will have little to no impact on its business. Furthermore, given the interconnected nature of the supply chain and its significant presence in the industry, it may be an attractive target for such attacks. The insurance coverage held by SemiCab’s currently have in place may not apply to a particular loss or it may not be sufficient to cover all liabilities to which we may be subject. A loss for which SemiCab is not adequately insured could materially affect its financial results.

 

Though it is difficult to determine what, if any, harm may directly result from any specific interruption or attack, a significant impact on the performance, reliability, security, and availability of SemiCab’s operating systems and technical infrastructure to the satisfaction of its users may harm its reputation, impair its ability to retain existing customers or attract new customers, and expose it to legal claims and government action, each of which could have a material adverse impact on its financial condition, results of operations, and growth prospects.

 

SemiCab’s international operations subject it to operational, financial, and data privacy risks.

 

SemiCab provide services within foreign countries on an increasing basis. Its business outside of the U.S. is subject to various risks, including:

 

difficulties in managing or overseeing foreign operations and agents;
limitations on the repatriation of funds because of foreign exchange controls;
foreign currency fluctuations;
different liability standards;
intellectual property laws of countries that do not protect its intellectual property rights, including but not limited to, its proprietary information systems, to the same extent as the laws of the U.S.;
issues related to non-compliance with laws, rules, and regulations in the countries in which it operates including the U.S. Foreign Corrupt Practices Act and similar regulations. Failure to comply could result in reputational harm, substantial penalties, and operational restrictions; and
global laws and regulations regarding the collection, use, processing, and transfer of personal information may impact its services by imposing restrictions on processing, increase legal claim liability, and increase regulatory scrutiny and fines. These requirements continue to evolve and vary by region and regime, which increases the risk of noncompliance and impacts operations, including additional expenses and resources necessary to manage compliant operations.

 

The occurrence or consequences of any of these factors may restrict its ability to operate in the affected region and/or decrease the profitability of its operations in that region.

 

Foreign currency fluctuations could result in currency exchange gains or losses or could affect the book value of its assets and liabilities. Furthermore, SemiCab may experience unanticipated changes to its income tax liabilities resulting from changes in geographical income mix and changing international tax legislation. If SemiCab does not correctly anticipate changes in international economic and political conditions, it may not be able to alter its business practices in time to avoid adverse effects.

 

8

 

 

SemiCab’s ability to appropriately staff and retain employees is important to its business model.

 

SemiCab’s continued success depends upon its ability to attract and retain motivated logistics and technology professionals. In periods of rapid change, it may be more difficult to match its staffing level to its business needs. SemiCab cannot guarantee it will be able to continue to hire and retain a sufficient number of qualified personnel. In addition, macroeconomic factors impacting the labor market may result in higher costs to hire and retain qualified personnel. Because of its highly experienced employee base, its employees are attractive targets for new and existing competitors. Continued success depends in large part on its ability to develop successful employees into managers and architects.

 

SemiCab uses, and may continue to expand its use of, machine learning and artificial intelligence (“AI”) technologies to deliver its services and operate its business.

 

If SemiCab fails to successfully integrate AI into its platform and business processes, or if it fails to keep pace with rapidly evolving AI technological developments, including attracting and retaining talented AI developers and programmers and cybersecurity personnel, it may face a competitive disadvantage. At the same time, the use or offering of AI technologies may result in new or expanded risks and liabilities, including enhanced government or regulatory scrutiny, litigation, privacy and compliance issues, ethical concerns, confidentiality, reputational harm, and security risks. It is not possible to predict all of the risks related to the use of AI and changes in laws, rules, directives, and regulations governing the use of AI may adversely affect the ability to develop and use AI or subject SemiCab to legal liability. The cost of complying with laws and regulations governing AI could be significant and would increase operating expenses, which could adversely affect its business, financial condition, and results of operations. Further, market demand and acceptance of AI technologies are uncertain, there may be challenges to further incorporate AI into SemiCab’s processes.

 

SemiCab’s business is dependent on a small number of customers.

 

SemiCab derives a significant portion of its total revenues from a small number of customers. During 2023, SemiCab’s top 5 customers based on total revenue comprised approximately 99 percent of its consolidated total revenues. Its largest customer comprised approximately 37 percent of its consolidated total revenues. The sudden loss of major customers could materially and adversely affect its operating results.

 

SemiCab is subject to claims arising from its transportation operations.

 

SemiCab uses the services of thousands of third-party transportation companies in connection with its transportation operations. From time to time, the drivers employed and engaged by the motor carriers with which SemiCab contracts with are involved in accidents, which may result in serious personal injuries. The resulting types and/or amounts of damages may be excluded by or exceed the amount of insurance coverage maintained by the contracted motor carrier. SemiCab contractually requires all motor carriers it works with to carry at least $1,000,000 in automobile liability insurance. SemiCab also requires all contracted motor carriers to maintain workers compensation and other insurance coverage as required by law. Most contracted motor carriers have insurance exceeding these minimum requirements, as well as cargo insurance in varying policy amounts. Although these drivers are not employees of SemiCab and all of these drivers are employees, owner-operators, or independent contractors working for the contracted motor carriers, from time to time, claims may be asserted against SemiCab for its actions or for SemiCab’s actions in retaining them. Claims against SemiCab may exceed the amount of its insurance coverage or may not be covered by insurance at all. A material increase in the frequency or severity of accidents, liability claims, workers’ compensation claims, or unfavorable resolutions of claims could materially and adversely affect its operating results. In addition, significant increases in insurance costs or the inability to purchase insurance as a result of these claims could reduce its profitability. SemiCab’s involvement in the transportation of certain goods, including but not limited to, hazardous materials, could also increase its exposure in the event one of its contracted motor carriers is involved in an accident resulting in injuries or contamination.

 

9

 

 

In North America, as a property freight broker, SemiCab is not legally liable for loss or damage to its customers’ cargo. In its customer contracts, SemiCab may agree to assume cargo liability up to a stated maximum. Although SemiCab is not legally liable for loss or damage to its customers’ cargo, from time to time, claims may be asserted against SemiCab for cargo losses. SemiCab maintains a broad cargo liability insurance policy to help protect it against catastrophic losses that may not be recovered from the responsible contracted carrier. SemiCab also carries various liability insurance policies, including automobile and general liability.

 

SemiCab’s business depends upon compliance with numerous government regulations.

 

SemiCab’s operations may be regulated and licensed by various federal, state, and local transportation agencies in the U.S. and similar governmental agencies in foreign countries in which its operates.

 

SemiCab is subject to licensing and regulation as a property freight broker and is licensed by the DOT to arrange for the transportation of property by motor vehicle. The DOT prescribes qualifications for acting in this capacity, including certain surety bonding requirements. SemiCab also has and maintains other licenses as required by law. SemiCab’s failure to maintain required permits or licenses, or to comply with applicable regulations, could result in substantial fines or revocation of its operating permits and licenses

 

Legislative or regulatory changes can affect the economics of the transportation industry by requiring changes in operating practices or influencing the demand for, and the cost of providing, transportation services. SemiCab may experience an increase in operating costs, such as security costs, as a result of governmental regulations that have been or will be adopted in response to terrorist activities and potential terrorist activities. No assurances can be given that SemiCab will be able to pass these increased costs on to its customers in the form of rate increases or surcharges, and its operations and profitability may be materially and adversely affected as a result.

 

Risks related to the Asset Purchase Agreement

 

Closing of the transaction pursuant to the Asset Purchase Agreement is subject to certain conditions and if these conditions are not satisfied, waived or fulfilled in a timely manner, the transaction may be delayed or not completed.

 

The obligation of each of the Company, SemiCab, and SemiCab LLC to consummate the transactions contemplated by the Asset Purchase Agreement is subject to the satisfaction (or, to the extent permitted by applicable law, waiver) of a number of conditions, including, among others that the Company has consummated a financing transaction for gross proceeds of no less than $1,700,000. Many of the conditions to the Closing may not be within the parties’ control, and neither party can predict when, or if, these conditions will be satisfied. If any of these conditions are not satisfied or waived prior to June 30, 2024, it is possible that the Asset Purchase Agreement may be delayed or not completed.

 

Any delay in completing the closing may adversely affect the benefits that the Company expects to achieve from the acquisition.

 

There can be no assurance that the conditions to the Closing will be satisfied, waived or fulfilled in a timely fashion or that the acquisition will be completed.

 

Resources expended in pursuit of the transactions contemplated under the Asset Purchase Agreement would be wasted if the transactions are not completed.

 

Due diligence, the negotiation, drafting and execution of the agreements signed in connection with the Asset Purchase agreement, and the preparation of related disclosure documents and other filings required substantial management time and attention and substantial costs for accountants, attorneys, consultants and others. If the Company fails to complete the transactions contemplated by the Asset Purchase Agreement for any number of reasons, many of which are beyond our control, it will result in a loss to us of the related costs incurred.

 

10

 

 

We may not realize the growth opportunities that are anticipated from the transactions contemplated by the Asset Purchase Agreement

 

The benefits that we expect to achieve as a result of the acquisition will depend, in part, on our ability to realize anticipated growth opportunities. Our success in realizing these growth opportunities, and the timing of this realization, depends on the successful integration of SemiCab’s business and operations and the Company’s business and operations. Even if we are able to integrate the SemiCab businesses and operations successfully, this integration may not result in the realization of the full benefits of the growth opportunities that we currently expect. While we anticipate that certain expenses will be incurred, such expenses are difficult to estimate accurately, and may exceed current estimates. Accordingly, the benefits from the transaction may be offset by costs incurred or delays in integrating the companies.

 

CYBERSECURITY

 

Cybersecurity Risk Management and Strategy

 

The ever-evolving threat landscape makes data security and privacy a critical priority. SemiCab’s technology team has experience and expertise supporting mitigation of the potential cybersecurity threats facing its organization and vulnerabilities facing its technology infrastructure and potential cybersecurity threats. All employees have access to cybersecurity trainings.

 

SemiCab maintains processes for key risk identification, mitigation efforts, and day-to-day management of risks, including cybersecurity risks.

 

Although it is difficult to determine the potential impacts from a cybersecurity incident, SemiCab may experience negative impacts such as reputational harm, inability to retain existing customers or attract new customers, exposure to legal claims and government action, among others. SemiCab cannot guarantee future attacks will have little to no impact on its business. Furthermore, given the interconnected nature of the supply chain and its significant presence in the industry, SemiCab believes it may be an attractive target for such attacks. The impact of a cybersecurity incident may have a material adverse impact on SemiCab’s financial condition, results of operations, availability of its systems, and growth prospects, which makes cybersecurity risk management of critical importance.

 

Although SemiCab has internally developed the majority of its line of business applications, it also relies on technology provided by third parties. SemiCab has processes in place to oversee and identify risks from cybersecurity threats associated with the use of third-party technology including third-party risk management, and process and partner intake risk assessments. These processes help mitigate the risks associated with utilizing external technology platforms and help prevent disruptions.

 

SemiCab has processes and programs in place to meet its global compliance obligations and work with its employees and teams across the globe to ensure security and data protection principles are integrated into the way it conducts its business.

 

Item 7.01 Regulation FD Disclosure.

 

On June 12, 2024, the Company issued a press release announcing the foregoing transactions. A copy of the press release is attached as Exhibit 99.1 and incorporated herein by reference.

 

The information furnished pursuant to Item 7.01, including Exhibit 99.1, shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (“Exchange Act”) or otherwise subject to the liabilities of that section, and shall not be deemed to be incorporated by reference into any filing made by us under the Exchange Act or Securities Act, regardless of any general incorporation language in any such filing, except as shall be expressly set forth by specific reference in such filing.

 

11

 

 

Item 9.01 Financial Statement and Exhibits.

 

(a) Financial Statements of Business Acquired.

 

The financial statements of SemiCab, are filed as Exhibit 99.2 and 99.3 to this Current Report on Form 8-K and are incorporated herein by reference.

 

(b) Pro Forma Financial Information

 

The unaudited pro forma condensed consolidated financial information of the Company in connection with the acquisition is filed as Exhibit 99.4 to this Current Report on Form 8-K and are incorporated herein by reference.

 

(d) Exhibits. Exhibit No. Description

 

Exhibit

No.

  Description
2.1   Asset Purchase Agreement dated June 11, 2024, between The Singing Machine Company, Inc., SemiCab, Inc, and SemiCab Holdings, LLC.*
     
10.1   Operating Agreement between The Singing Machine Company, Inc, SemiCab Holdings, LLC and SemiCab, Inc. **
     
99.1   Press Release issued June 12, 2024
     
99.2   Audited Financial Statements of SemiCab, Inc as of and for the year ended December 31, 2022 and 2023
     
99.3   Unaudited Financial Statements of SemiCab, Inc. as of and for the three months ended March 31, 2024
     
99.4   Unaudited Pro Forma Condensed Consolidated Financial Statements for the nine-month transition period ended December 31, 2023 and the three months ended March 31, 2024

 

101.INS*   XBRL Instance Document
101.SCH*   XBRL Taxonomy Extension Schema Document
101.CAL*   XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*   XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*   XBRL Taxonomy Extension Label Linkbase Document
101.PRE*   XBRL Taxonomy Extension Presentation Linkbase Document
104   Cover Page Interactive Data File (embedded within the Inline XBRL document).

 

* Certain schedules and exhibits have been omitted pursuant to Items 601(a)(5) and 601(b)(2) of Regulation S-K. The Company will furnish supplementally a copy of any omitted schedule or exhibit to the Securities and Exchange Commission upon request. The Company may request confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, for any schedules or exhibits so furnished.

 

** In accordance with Item 601(b)(10) of Regulation S-K, certain provisions or terms of the Agreement have been redacted. The Company will provide an unredacted copy to the exhibit on a supplemental basis to the SEC or its staff upon request.

 

12

 

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

Date: June 12, 2024

 

  THE SINGING MACHINE COMPANY, INC.
     
  By:  /s/ Gary Atkinson
    Gary Atkinson
    Chief Executive Officer

 

13

 

 

Exhibit 2.1

 

ASSET PURCHASE AGREEMENT

among

SEMICAB, INC.,

SEMICAB HOLDINGS, LLC,

 

and

 

THE SINGING MACHINE COMPANY, INC.

dated as of

June 11, 2024

 

 
 

 

TABLE OF CONTENTS

 

ARTICLE I DEFINITIONS 5
ARTICLE II PURCHASE AND SALE 13
Section 2.01 Purchase and Sale of Assets. 13
Section 2.02 Excluded Assets. 14
Section 2.03 Assumed Liabilities. 15
Section 2.04 Excluded Liabilities. 15
Section 2.05 Purchase Price. 17
Section 2.07 Allocation of Purchase Price. 17
Section 2.08 Withholding Tax. 17
Section 2.09 Third Party Consents.  
ARTICLE III CLOSING 18
Section 3.01 Closing. 18
Section 3.02 Closing Deliverables. 18
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER 19
Section 4.01 Organization and Qualification of Seller. 19
Section 4.02 Authority of Seller. 20
Section 4.03 No Conflicts; Consents. 20
Section 4.04 Financial Statements. 20
Section 4.05 Undisclosed Liabilities. 21
Section 4.06 Absence of Certain Changes, Events and Conditions. 21
Section 4.07 Material Contracts. 23
Section 4.08 Title to Purchased Assets. 24
Section 4.09 Condition and Sufficiency of Assets. 25
Section 4.10 Real Property. 25
Section 4.11 Intellectual Property. 27
Section 4.12 Inventory. 30

 

2
 

 

Section 4.13 Accounts Receivable. 30
Section 4.14 Customers and Suppliers. 30
Section 4.15 Insurance. 31
Section 4.16 Legal Proceedings; Governmental Orders. 31
Section 4.17 Compliance With Laws; Permits. 31
Section 4.18 Environmental Matters. 32
Section 4.19 Employee Benefit Matters. 33
Section 4.20 Employment Matters. 35
Section 4.21 Taxes. 36
Section 4.23 Brokers. 37
Section 4.24 Full Disclosure. 38
ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER 38
Section 5.01 Organization of Buyer. 38
Section 5.02 Authority of Buyer. 38
Section 5.03 No Conflicts; Consents. 38
Section 5.04 Brokers. 39
Section 5.06 Legal Proceedings. 39
ARTICLE VI COVENANTS 39
Section 6.01 Conduct of Business Prior to the Closing. 39
Section 6.02 Access to Information. 40
Section 6.03 No Solicitation of Other Bids. 40
Section 6.04 Notice of Certain Events. 41
Section 6.05 Employees and Employee Benefits. 41
Section 6.06 Confidentiality. 42
Section 6.08 Governmental Approvals and Consents. 42
Section 6.09 Books and Records. 44
Section 6.10 Closing Conditions 44

 

3
 

 

Section 6.11 Public Announcements. 44
Section 6.12 Bulk Sales Laws. 45
Section 6.13 Receivables. 45
Section 6.14 Transfer Taxes. 45
Section 6.15 Tax Clearance Certificates. 45
Section 6.16 Further Assurances. 45
ARTICLE VII CONDITIONS TO CLOSING 45
Section 7.01 Conditions to Obligations of All Parties. 45
Section 7.02 Conditions to Obligations of Buyer. 46
Section 7.03 Conditions to Obligations of Seller. 48
ARTICLE VIII INDEMNIFICATION 49
Section 8.01 Survival. 49
Section 8.02 Indemnification By Seller. 50
Section 8.03 Indemnification By Buyer. 50
Section 8.04 Certain Limitations. 50
Section 8.05 Indemnification Procedures. 51
Section 8.06 Payments; Indemnification Escrow Fund. 52
Section 8.07 Tax Treatment of Indemnification Payments. 52
Section 8.08 Effect of Investigation. 53
Section 8.09 Exclusive Remedies. 53
ARTICLE IX TERMINATION 53
Section 9.01 Termination. 53
Section 9.02 Effect of Termination. 54
ARTICLE X MISCELLANEOUS 54
Section 10.01 Expenses. 54
Section 10.02 Notices. 55
Section 10.03 Interpretation. 55
Section 10.04 Headings. 56
Section 10.05 Severability. 56
Section 10.06 Entire Agreement. 56
Section 10.07 Successors and Assigns. 56
Section 10.08 No Third-Party Beneficiaries. 56
Section 10.09 Amendment and Modification; Waiver. 56
Section 10.10 Governing Law; Submission to Jurisdiction; Waiver of Jury Trial. 57
Section 10.11 Specific Performance. 57
Section 10.12 Counterparts. 57

 

4
 

 

ASSET PURCHASE AGREEMENT

 

This Asset Purchase Agreement (this “Agreement”), dated as of June 11, 2024, is entered into between SemiCab, Inc., a Delaware corporation, ( the “Seller”), The Singing Machine Company, Inc., a Delaware corporation and its wholly owned subsidiary, SemiCab Holdings, LLC, a Nevada limited liability company (collectively the “Buyer”).

 

Recitals

 

WHEREAS, Seller is engaged in the business of providing automated optimization services for shippers and carriers using a propriety software platform that employs both machine learning and artificial intelligence technologies (the “Business”); and

 

WHEREAS, Seller wishes to sell and assign to Buyer, and Buyer wishes to purchase and assume from Seller, substantially all the assets, and certain specified liabilities, of the Business, subject to the terms and conditions set forth herein;

 

NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

 

ARTICLE I
Definitions

 

The following terms have the meanings specified or referred to in this ARTICLE I:

 

Accounts Receivable” has the meaning set forth in Section 2.01(b).

 

Acquisition Proposal” has the meaning set forth in Section 6.03(a).

 

Action” means any claim, action, cause of action, demand, lawsuit, arbitration, inquiry, audit, notice of violation, proceeding, litigation, citation, summons, subpoena or investigation of any nature, civil, criminal, administrative, regulatory or otherwise, whether at law or in equity.

 

Affiliate” of a Person means any other Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such Person. The term “control” (including the terms “controlled by” and “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

 

Agreement” has the meaning set forth in the preamble.

 

Allocation Schedule” has the meaning set forth in Section 2.06.

 

Ancillary Documents” means, the Bill of Sale, the Assignment and Assumption Agreement, Intellectual Property Assignments, the Option Agreement, the Operating Agreement, the Employment Agreements with Ajesh Kapoor, and Vivek Sehgal and the other agreements, instruments and documents required to be delivered at the Closing.

 

5
 

 

Assigned Contracts” has the meaning set forth in Section 2.01(d).

 

Assignment and Assumption Agreement” has the meaning set forth in Section 3.02(a)(ii).

 

Assumed Liabilities” has the meaning set forth in Section 2.03.

 

Audited Financial Statements” has the meaning set forth in Section 4.04.

 

Balance Sheet” has the meaning set forth in Section 4.04.

 

Balance Sheet Date” has the meaning set forth in Section 4.04.

 

Basket” has the meaning set forth in Section 8.04(a).

 

Benefit Plan” has the meaning set forth in Section 4.19(a).

 

Bill of Sale” has the meaning set forth in Section 3.02(a)(i).

 

Books and Records” has the meaning set forth in Section 2.01(m).

 

Business” has the meaning set forth in the recitals.

 

Business Day” means any day except Saturday, Sunday or any other day on which commercial banks located in New York city are authorized or required by Law to be closed for business.

 

Business IT Systems” means all Software, computer hardware, servers, networks, platforms, peripherals, and similar or related items of automated, computerized, or other information technology (IT) networks and systems (including telecommunications networks and systems for voice, data, and video) owned, leased, licensed, or used (including through cloud-based or other third-party service providers) in the conduct of the Business.

 

Buyer” has the meaning set forth in the preamble.

 

Buyer Closing Certificate” has the meaning set forth in Section 7.03(h).

 

Buyer Indemnitees” has the meaning set forth in Section 8.02.

 

CERCLA” means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. §§ 9601 et seq.

 

Closing” has the meaning set forth in Section 3.01.

 

Closing Date” has the meaning set forth in Section 3.01.

 

Code” means the Internal Revenue Code of 1986, as amended.

 

6
 

 

Contracts” means all contracts, leases, deeds, mortgages, licenses, instruments, notes, commitments, undertakings, indentures, joint ventures and all other agreements, commitments and legally binding arrangements, whether written or oral.

 

Copyrights” has the meaning set forth in the definition of Intellectual Property.

 

Current Assets” means the current assets of the Business only to the extent acquired pursuant to the terms of this Agreement.

 

Current Liabilities” means the current liabilities of the Business only to the extent assumed pursuant to the terms of this Agreement.

 

Direct Claim” has the meaning set forth in Section 8.05(c).

 

Disclosure Schedules” means the Disclosure Schedules delivered by Seller and Buyer concurrently with the execution and delivery of this Agreement.

 

Dollars” or “$” means the lawful currency of the United States.

 

Encumbrance” means any charge, claim, community property interest, pledge, condition, equitable interest, lien (statutory or other), option, security interest, mortgage, easement, encroachment, right of way, right of first refusal, or restriction of any kind, including any restriction on use, voting, transfer, receipt of income or exercise of any other attribute of ownership.

 

Environmental Claim” means any Action, Governmental Order, lien, fine, penalty, or, as to each, any settlement or judgment arising therefrom, by or from any Person alleging liability of whatever kind or nature (including liability or responsibility for the costs of enforcement proceedings, investigations, cleanup, governmental response, removal or remediation, natural resources damages, property damages, personal injuries, medical monitoring, penalties, contribution, indemnification and injunctive relief) arising out of, based on or resulting from: (a) the presence of, Release of, or exposure to, any Hazardous Materials; or (b) any actual or alleged non-compliance with any Environmental Law or term or condition of any Environmental Permit.

 

Environmental Law” means any applicable Law, and any Governmental Order or binding agreement with any Governmental Authority: (a) relating to pollution (or the cleanup thereof) or the protection of natural resources, endangered or threatened species, human health or safety, or the environment (including ambient or indoor air, soil, surface water or groundwater, or subsurface strata); or (b) concerning the presence of, exposure to, or the management, manufacture, use, containment, storage, recycling, reclamation, reuse, treatment, generation, discharge, transportation, processing, production, disposal or remediation of any Hazardous Materials. The term “Environmental Law” includes, without limitation, the following (including their implementing regulations and any state analogs): the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. §§ 9601 et seq.; the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976, as amended by the Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. §§ 6901 et seq.; the Federal Water Pollution Control Act of 1972, as amended by the Clean Water Act of 1977, 33 U.S.C. §§ 1251 et seq.; the Toxic Substances Control Act of 1976, as amended, 15 U.S.C. §§ 2601 et seq.; the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. §§ 11001 et seq.; the Clean Air Act of 1966, as amended by the Clean Air Act Amendments of 1990, 42 U.S.C. §§ 7401 et seq.; the Federal Insecticide, Fungicide and Rodenticide Act of 1910, as amended, 7 U.S.C. §§ 136 et seq.; the Oil Pollution Act of 1990, as amended, 33 U.S.C. §§ 2701 et seq.; and the Occupational Safety and Health Act of 1970, as amended, 29 U.S.C. §§ 651 et seq.

 

7
 

 

Environmental Notice” means any written directive, notice of violation or infraction, or notice respecting any Environmental Claim relating to actual or alleged non-compliance with any Environmental Law or any term or condition of any Environmental Permit.

 

Environmental Permit” means any Permit, letter, clearance, consent, waiver, closure, exemption, decision or other action required under or issued, granted, given, authorized by or made pursuant to Environmental Law.

 

Equity Interest” has the meaning set forth in Section 2.05.

 

ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the regulations promulgated thereunder.

 

ERISA Affiliate” means all employers (whether or not incorporated) that would be treated together with the Seller or any of its Affiliates as a “single employer” within the meaning of Section 414 of the Code or Section 4001 of ERISA.

 

Excluded Assets” has the meaning set forth in Section 2.02.

 

Excluded Contracts” has the meaning set forth in Section 2.02(a).

 

Excluded Liabilities” has the meaning set forth in Section 2.04.

 

Financial Statements” has the meaning set forth in Section 4.04.

 

FIRPTA Certificate” has the meaning set forth in Section 7.02(m).

 

GAAP” means United States generally accepted accounting principles in effect from time to time.

 

Government Contracts” has the meaning set forth in Section 4.07(a)(viii)

 

Governmental Authority” means any federal, state, local or foreign government or political subdivision thereof, or any agency or instrumentality of such government or political subdivision, or any self-regulated organization or other non-governmental regulatory authority or quasi-governmental authority (to the extent that the rules, regulations or orders of such organization or authority have the force of Law), or any arbitrator, court or tribunal of competent jurisdiction.

 

Governmental Order” means any order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Authority.

 

8
 

 

Hazardous Materials” means: (a) any material, substance, chemical, waste, product, derivative, compound, mixture, solid, liquid, mineral or gas, in each case, whether naturally occurring or manmade, that is hazardous, acutely hazardous, toxic, or words of similar import or regulatory effect under Environmental Laws; and (b) any petroleum or petroleum-derived products, radon, radioactive materials or wastes, asbestos in any form, lead or lead-containing materials, urea formaldehyde foam insulation and polychlorinated biphenyls.

 

Indemnified Party” has the meaning set forth in Section 8.05.

 

Indemnifying Party” has the meaning set forth in Section 8.05.

 

Independent Accountant” has the meaning set forth in Section 2.06.

 

Insurance Policies” has the meaning set forth in Section 4.15.

 

Intellectual Property” means any and all rights in, arising out of, or associated with any of the following in any jurisdiction throughout the world: (a) issued patents and patent applications (whether provisional or non-provisional), including divisionals, continuations, continuations-in-part, substitutions, reissues, reexaminations, extensions, or restorations of any of the foregoing, and other Governmental Authority-issued indicia of invention ownership (including certificates of invention, petty patents, and patent utility models) (“Patents”); (b) trademarks, service marks, brands, certification marks, logos, trade dress, trade names, and other similar indicia of source or origin, together with the goodwill connected with the use of and symbolized by, and all registrations, applications for registration, and renewals of, any of the foregoing (“Trademarks”); (c) copyrights and works of authorship, whether or not copyrightable, and all registrations, applications for registration, and renewals of any of the foregoing (“Copyrights”); (d) internet domain names and social media account or user names (including “handles”), whether or not Trademarks, all associated web addresses, URLs, websites and web pages, social media sites and pages, and all content and data thereon or relating thereto, whether or not Copyrights;(e) mask works, and all registrations, applications for registration, and renewals thereof; (f) industrial designs, and all Patents, registrations, applications for registration, and renewals thereof; (g) trade secrets, know-how, inventions (whether or not patentable), discoveries, improvements, technology, business and technical information, databases, data compilations and collections, tools, methods, processes, techniques, and other confidential and proprietary information and all rights therein (“Trade Secrets”); (h) computer programs, operating systems, applications, firmware and other code, including all source code, object code, application programming interfaces, data files, databases, protocols, specifications, and other documentation thereof (“Software”); (i) rights of publicity; and (j) all other intellectual or industrial property and proprietary rights.

 

Intellectual Property Agreements” means all licenses, sublicenses, consent to use agreements, settlements, coexistence agreements, covenants not to sue, waivers, releases, permissions and other Contracts, whether written or oral, relating to any Intellectual Property that is used or held for use in the conduct of the Business as currently conducted or proposed to be conducted] to which Seller is a party, beneficiary or otherwise bound.

 

9
 

 

Intellectual Property Assets” means all Intellectual Property that is owned by Seller and used or held for use in the conduct of the Business as currently conducted or proposed to be conducted, together with all (i) royalties, fees, income, payments, and other proceeds now or hereafter due or payable to Seller with respect to such Intellectual Property; and (ii) claims and causes of action with respect to such Intellectual Property, whether accruing before, on, or after the date hereof, including all rights to and claims for damages, restitution, and injunctive and other legal or equitable relief for past, present, or future infringement, misappropriation, or other violation thereof.

 

Intellectual Property Assignments” has the meaning set forth in Section 3.02(a)(iv).

 

Intellectual Property Registrations” means all Intellectual Property Assets that are subject to any issuance, registration, or application by or with any Governmental Authority or authorized private registrar in any jurisdiction, including issued Patents, registered Trademarks, domain names and Copyrights, and pending applications for any of the foregoing.

 

Interim Balance Sheet” has the meaning set forth in Section 4.04.

 

Interim Balance Sheet Date” has the meaning set forth in Section 4.04.

 

Interim Financial Statements” has the meaning set forth in Section 4.04.

 

Inventory” has the meaning set forth in Section 2.01(c).

 

Knowledge of Seller or Seller’s Knowledge” or any other similar knowledge qualification, means the actual or constructive knowledge of any director or officer of Seller, after due inquiry.

 

Law” means any statute, law, ordinance, regulation, rule, code, order, constitution, treaty, common law, judgment, decree, other requirement or rule of law of any Governmental Authority.

 

Leased Real Property” has the meaning set forth in Section 4.10(b).

 

Leases” has the meaning set forth in Section 4.10(b).

 

Liabilities” means liabilities, obligations or commitments of any nature whatsoever, asserted or unasserted, known or unknown, absolute or contingent, accrued or unaccrued, matured or unmatured or otherwise.

 

Licensed Intellectual Property” means all Intellectual Property in which Seller holds any rights or interests granted by other Persons, including any of Seller’s Affiliates, that is used or held for use in the conduct of the Business as currently conducted or proposed to be conducted.

 

Losses” means losses, damages, Liabilities, deficiencies, Actions, judgments, interest, awards, penalties, fines, costs or expenses of whatever kind, including reasonable attorneys’ fees and the cost of enforcing any right to indemnification hereunder and the cost of pursuing any insurance providers; provided, however, that “Losses” shall not include punitive damages, except to the extent actually awarded to a Governmental Authority or other third party.

 

10
 

 

Material Adverse Effect” means any event, occurrence, fact, condition or change that is, or could reasonably be expected to become, individually or in the aggregate, materially adverse to (a) the business, results of operations, condition (financial or otherwise) or assets of the Business, (b) the value of the Purchased Assets, or (c) the ability of Seller to consummate the transactions contemplated hereby on a timely basis; provided, however, that “Material Adverse Effect” shall not include any event, occurrence, fact, condition or change, directly or indirectly, arising out of or attributable to: (i) general economic or political conditions; (ii) conditions generally affecting the industries in which the Business operates; (iii) any changes in financial or securities markets in general; (iv) acts of war (whether or not declared), armed hostilities or terrorism, or the escalation or worsening thereof; (v) any action required or permitted by this Agreement or any action taken (or omitted to be taken) with the written consent of or at the written request of Buyer; (vi) any changes in applicable Laws or accounting rules, including GAAP; (vii) the public announcement, pendency or completion of the transactions contemplated by this Agreement; (viii) any natural or man-made disasters or acts of God; or (ix) any failure by the Business to meet any internal or published projections, forecasts or revenue or earnings predictions (provided that the underlying causes of such failures (subject to the other provisions of this definition) shall not be excluded); provided further, however, that any event, occurrence, fact, condition or change referred to in clauses (i) through (iv) immediately above shall be taken into account in determining whether a Material Adverse Effect has occurred or could reasonably be expected to occur to the extent that such event, occurrence, fact, condition or change has a disproportionate effect on the Business compared to other participants in the industries in which the Business operates.

 

Material Contracts” has the meaning set forth in Section 4.07(a)(i).

 

Material Customers” has the meaning set forth in Section 4.14(a).

 

Material Suppliers” has the meaning set forth in Section 4.14(b).

 

Multiemployer Plan” has the meaning set forth in Section 4.19(c).

 

Operating Agreement” has the meaning set forth in Section 3.02(a)(viii).

 

Owned Real Property” has the meaning set forth in Section 4.10(a).

 

Parent” has the meaning set forth in Section 2.05.

 

Patents” has the meaning set forth in the definition of Intellectual Property.

 

Permits” means all permits, licenses, franchises, approvals, authorizations, registrations, certificates, variances and similar rights obtained, or required to be obtained, from Governmental Authorities.

 

Permitted Encumbrances” has the meaning set forth in Section 4.08(a).

 

11
 

 

Person” means an individual, corporation, partnership, joint venture, limited liability company, Governmental Authority, unincorporated organization, trust, association or other entity.

 

Platform Agreements” has the meaning set forth in Section 4.11(h).

 

Purchase Price” has the meaning set forth in Section 2.05.

 

Purchased Assets” has the meaning set forth in Section 2.01.

 

Qualified Benefit Plan” has the meaning set forth in Section 4.19(c).

 

Real Property” means, collectively, the Owned Real Property and the Leased Real Property.

 

Release” means any actual or threatened release, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, abandonment, disposing or allowing to escape or migrate into or through the environment (including, without limitation, ambient or indoor air, surface water, groundwater, land surface or subsurface strata or within any building, structure, facility or fixture).

 

Representative” means, with respect to any Person, any and all directors, officers, employees, consultants, financial advisors, counsel, accountants and other agents of such Person.

 

Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

Seller” has the meaning set forth in the preamble.

 

Seller Closing Certificate” has the meaning set forth in Section 7.02(j).

 

Seller Indemnitees” has the meaning set forth in Section 8.03.

 

Significant Owner” means each of Ajesh Kapoor and Vivek Sehgal.

 

Single Employer Plan” has the meaning set forth in Section 4.19(c).

 

Software” has the meaning set forth in the definition of Intellectual Property.

 

Tangible Personal Property” has the meaning set forth in Section 2.01(f).

 

Taxes” means all federal, state, local, foreign and other income, gross receipts, sales, use, production, ad valorem, transfer, documentary, franchise, registration, profits, license, lease, service, service use, withholding, payroll, employment, unemployment, estimated, excise, severance, environmental, stamp, occupation, premium, property (real or personal), real property gains, windfall profits, customs, duties or other taxes, fees, assessments or charges of any kind whatsoever, together with any interest, additions or penalties with respect thereto and any interest in respect of such additions or penalties.

 

12
 

 

Tax Return” means any return, declaration, report, claim for refund, information return or statement or other document relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.

 

Third-Party Claim” has the meaning set forth in Section 8.05(a).

 

Trade Secrets” has the meaning set forth in the definition of Intellectual Property.

 

Trademarks” has the meaning set forth in the definition of Intellectual Property.

 

Union” has the meaning set forth in Section 4.20(b).

 

ARTICLE II
Purchase and Sale

 

Section 2.01 Purchase and Sale of Assets. Subject to the terms and conditions set forth herein, at the Closing, Seller shall sell, assign, transfer, convey and deliver to Buyer, and Buyer shall purchase from Seller, free and clear of any Encumbrances other than Permitted Encumbrances, all of Seller’s right, title and interest in, to and under all of the assets, properties and rights of every kind and nature, whether real, personal or mixed, tangible or intangible (including goodwill), wherever located and whether now existing or hereafter acquired (other than the Excluded Assets), which relate to, or are used or held for use in connection with, the Business (collectively, the “Purchased Assets”), including, without limitation, the following:

 

(a) cash and cash equivalents;

 

(b) all accounts or notes receivable held by Seller, and any security, claim, remedy or other right related to any of the foregoing (“Accounts Receivable”);

 

(c) all inventory, finished goods, raw materials, work in progress, packaging, supplies, parts and other inventories (“Inventory”);

 

(d) all Contracts, including Intellectual Property Agreements, set forth on Section 2.01(d) of the Disclosure Schedules (the “Assigned Contracts”);

 

(e) all Intellectual Property Assets;

 

(f) all furniture, fixtures, equipment, machinery, tools, vehicles, office equipment, supplies, computers, telephones and other tangible personal property (the “Tangible Personal Property”);

 

(g) all Owned Real Property and Leased Real Property;

 

(h) all Permits which are held by Seller and required for the conduct of the Business as currently conducted or for the ownership and use of the Purchased Assets, including, without limitation, those listed on Section 4.17(b) and Section 4.18(b) of the Disclosure Schedules;

 

13
 

 

(i) all rights to any Actions of any nature available to or being pursued by Seller to the extent related to the Business, the Purchased Assets or the Assumed Liabilities, whether arising by way of counterclaim or otherwise;

 

(j) all prepaid expenses, credits, advance payments, claims, security, refunds, rights of recovery, rights of set-off, rights of recoupment, deposits, charges, sums and fees (including any such item relating to the payment of Taxes);

 

(k) all of Seller’s rights under warranties, indemnities and all similar rights against third parties to the extent related to any Purchased Assets;

 

(l) all insurance benefits, including rights and proceeds, arising from or relating to the Business, the Purchased Assets or the Assumed Liabilities;

 

(m) originals, or where not available, copies, of all books and records, including, but not limited to, books of account, ledgers and general, financial and accounting records, machinery and equipment maintenance files, customer lists, customer purchasing histories, price lists, distribution lists, supplier lists, production data, quality control records and procedures, customer complaints and inquiry files, research and development files, records and data (including all correspondence with any Governmental Authority), sales material and records (including pricing history, total sales, terms and conditions of sale, sales and pricing policies and practices), strategic plans, internal financial statements, marketing and promotional surveys, material and research and files relating to the Intellectual Property Assets and the Intellectual Property Agreements (“Books and Records”); and

 

(n) all goodwill and the going concern value of the Business.

 

Section 2.02 Excluded Assets. Notwithstanding the foregoing, the Purchased Assets shall not include the following assets (collectively, the “Excluded Assets”):

 

(a) Contracts, including Intellectual Property Agreements, that are not Assigned Contracts (the “Excluded Contracts”);

 

(b) the corporate seals, organizational documents, minute books, stock books, Tax Returns, books of account or other records having to do with the corporate organization of Seller;

 

(c) all Benefit Plans and assets attributable thereto;

 

(d) the assets, properties and rights specifically set forth on Section 2.02(d) of the Disclosure Schedules; and

 

(e) the rights which accrue or will accrue to Seller under this Agreement and the Ancillary Documents.

 

14
 

 

Section 2.03 Assumed Liabilities. Subject to the terms and conditions set forth herein, Buyer shall assume and agree to pay, perform and discharge only the following Liabilities of Seller (collectively, the “Assumed Liabilities”), and no other Liabilities:

 

(a) all trade accounts payable of Seller to third parties in connection with the Business that remain unpaid and are not delinquent as of the Closing Date and that either are reflected on the Interim Balance Sheet Date or arose in the ordinary course of business consistent with past practice since the Interim Balance Sheet Date;

 

(b) all Liabilities in respect of the Assigned Contracts but only to the extent that such Liabilities thereunder are required to be performed after the Closing Date, were incurred in the ordinary course of business and do not relate to any failure to perform, improper performance, warranty or other breach, default or violation by Seller on or prior to the Closing; and

 

(c) those Liabilities of Seller set forth on Section 2.03(c) of the Disclosure Schedules.

 

Section 2.04 Excluded Liabilities. Notwithstanding the provisions of Section 2.03 or any other provision in this Agreement to the contrary, Buyer shall not assume and shall not be responsible to pay, perform or discharge any Liabilities of Seller or any of its Affiliates of any kind or nature whatsoever other than the Assumed Liabilities (the “Excluded Liabilities”). Seller shall, and shall cause each of its Affiliates to, pay and satisfy in due course all Excluded Liabilities which they are obligated to pay and satisfy. Without limiting the generality of the foregoing, the Excluded Liabilities shall include, but not be limited to, the following:

 

(a) any Liabilities of Seller arising or incurred in connection with the negotiation, preparation, investigation and performance of this Agreement, the Ancillary Documents and the transactions contemplated hereby and thereby, including, without limitation, fees and expenses of counsel, accountants, consultants, advisers and others;

 

(b) any Liability for (i) Taxes of Seller (or any stockholder or Affiliate of Seller) or relating to the Business, the Purchased Assets or the Assumed Liabilities for any Pre-Closing Tax Period; (ii) Taxes that arise out of the consummation of the transactions contemplated hereby or that are the responsibility of Seller pursuant to Section 6.14; or (iii) other Taxes of Seller (or any stockholder or Affiliate of Seller) of any kind or description (including any Liability for Taxes of Seller (or any stockholder or Affiliate of Seller) that becomes a Liability of Buyer under any common law doctrine of de facto merger or transferee or successor liability or otherwise by operation of contract or Law);

 

(c) any Liabilities relating to or arising out of the Excluded Assets;

 

(d) any Liabilities in respect of any pending or threatened Action arising out of, relating to or otherwise in respect of the operation of the Business or the Purchased Assets to the extent such Action relates to such operation on or prior to the Closing Date;

 

15
 

 

(e) any product Liability or similar claim for injury to a Person or property which arises out of or is based upon any express or implied representation, warranty, agreement or guaranty made by Seller, or by reason of the improper performance or malfunctioning of a product, improper design or manufacture, failure to adequately package, label or warn of hazards or other related product defects of any products at any time manufactured or sold or any service performed by Seller;

 

(f) any recall, design defect or similar claims of any products manufactured or sold or any service performed by Seller;

 

(g) any Liabilities of Seller arising under or in connection with any Benefit Plan providing benefits to any present or former employee of Seller;

 

(h) any Liabilities of Seller for any present or former employees, officers, directors, retirees, independent contractors or consultants of Seller, including, without limitation, any Liabilities associated with any claims for wages or other benefits, bonuses, accrued vacation, workers’ compensation, severance, retention, termination or other payments;

 

(i) any Environmental Claims, or Liabilities under Environmental Laws, to the extent arising out of or relating to facts, circumstances or conditions existing on or prior to the Closing or otherwise to the extent arising out of any actions or omissions of Seller;

 

(j) any trade accounts payable of Seller (i) to the extent not accounted for on the Interim Balance Sheet; (ii) which constitute intercompany payables owing to Affiliates of Seller; (iii) which constitute debt, loans or credit facilities to financial institutions; or (iv) which did not arise in the ordinary course of business;

 

(k) any Liabilities of the Business relating or arising from unfulfilled commitments, quotations, purchase orders, customer orders or work orders that (i) do not constitute part of the Purchased Assets issued by the Business’ customers to Seller on or before the Closing; (ii) did not arise in the ordinary course of business; or (iii) are not validly and effectively assigned to Buyer pursuant to this Agreement;

 

(l) any Liabilities to indemnify, reimburse or advance amounts to any present or former officer, director, employee or agent of Seller (including with respect to any breach of fiduciary obligations by same), except for indemnification of same pursuant to Section 8.03 as Seller Indemnitees;

 

(m) any Liabilities under the Excluded Contracts or any other Contracts, including Intellectual Property Agreements, (i) which are not validly and effectively assigned to Buyer pursuant to this Agreement; (ii) which do not conform to the representations and warranties with respect thereto contained in this Agreement; or (iii) to the extent such Liabilities arise out of or relate to a breach by Seller of such Contracts prior to Closing;

 

16
 

 

(n) any Liabilities associated with debt, loans or credit facilities of Seller and/or the Business owing to financial institutions; and

 

(o) any Liabilities arising out of, in respect of or in connection with the failure by Seller or any of its Affiliates to comply with any Law or Governmental Order.

 

Section 2.05 Purchase Price. The aggregate purchase price for the Purchased Assets shall be (a) 962,710 shares of Common Stock, par value $0.01 of the Singing Machine Company, Inc. (the “Parent”), and (b) a Twenty percent (20%) membership interest in SemiCab Holdings, LLC (the “Equity Interests” or the “Purchase Price”), plus the assumption of the Assumed Liabilities. The Purchase Price shall be paid as provided in Section 3.02.

 

Section 2.06 Allocation of Purchase Price. Seller and Buyer agree that the Purchase Price and the Assumed Liabilities (plus other relevant items) shall be allocated among the Purchased Assets for all purposes (including Tax and financial accounting) as shown on the allocation schedule (the “Allocation Schedule”). A draft of the Allocation Schedule shall be prepared by Buyer and delivered to Seller within thirty (30) days following the Closing Date. If Seller notifies Buyer in writing that Seller objects to one or more items reflected in the Allocation Schedule, Seller and Buyer shall negotiate in good faith to resolve such dispute; provided, however, that if Seller and Buyer are unable to resolve any dispute with respect to the Allocation Schedule within sixty (60) days following the Closing Date, such dispute shall be resolved by shall be submitted for resolution to the office of a mutually agreed to independent and impartial nationally recognized firm of independent certified public accountants (the “Independent Accountant”) who, acting as experts and not arbitrators. The fees and expenses of such accounting firm shall be borne equally by Seller and Buyer. Buyer and Seller shall file all Tax Returns (including amended returns and claims for refund) and information reports in a manner consistent with the Allocation Schedule.

 

Section 2.07 Withholding Tax. Buyer shall be entitled to deduct and withhold from the Purchase Price all Taxes that Buyer may be required to deduct and withhold under any provision of Tax Law. All such withheld amounts shall be treated as delivered to Seller hereunder.

 

Section 2.08 Third Party Consents. To the extent that Seller’s rights under any Contract or Permit constituting a Purchased Asset, or any other Purchased Asset, may not be assigned to Buyer without the consent of another Person which has not been obtained, this Agreement shall not constitute an agreement to assign the same if an attempted assignment would constitute a breach thereof or be unlawful, and Seller, at its expense, shall use its reasonable best efforts to obtain any such required consent(s) as promptly as possible. If any such consent shall not be obtained or if any attempted assignment would be ineffective or would impair Buyer’s rights under the Purchased Asset in question so that Buyer would not in effect acquire the benefit of all such rights, Seller, to the maximum extent permitted by law and the Purchased Asset, shall act after the Closing as Buyer’s agent in order to obtain for it the benefits thereunder and shall cooperate, to the maximum extent permitted by Law and the Purchased Asset, with Buyer in any other reasonable arrangement designed to provide such benefits to Buyer. Notwithstanding any provision in this Section 2.09 to the contrary, Buyer shall not be deemed to have waived its rights under Section 7.02(d) hereof unless and until Buyer either provides written waivers thereof or elects to proceed to consummate the transactions contemplated by this Agreement at Closing.

 

17
 

 

ARTICLE III
Closing

 

Section 3.01 Closing. Subject to the terms and conditions of this Agreement, the consummation of the transactions contemplated by this Agreement (the “Closing”) shall take place remotely by electronic exchange of documents and signatures, at 12:00 pm, Eastern Standard time, on the second Business Day after all of the conditions to Closing set forth in ARTICLE VII are either satisfied or waived (other than conditions which, by their nature, are to be satisfied on the Closing Date), or at such other time, date or place as Seller and Buyer may mutually agree upon in writing. The date on which the Closing is to occur is herein referred to as the “Closing Date”.

 

Section 3.02 Closing Deliverables.

 

(a) At the Closing, Seller shall deliver to Buyer the following:

 

(i) a bill of sale in form and substance satisfactory to Buyer (the “Bill of Sale”) and duly executed by Seller, transferring the tangible personal property included in the Purchased Assets to Buyer;

 

(ii) an assignment and assumption agreement in form and substance satisfactory to Buyer (the “Assignment and Assumption Agreement”) and duly executed by Seller, effecting the assignment to and assumption by Buyer of the Purchased Assets and the Assumed Liabilities;

 

(iii) an assignment in form and substance satisfactory to Buyer (the “Intellectual Property Assignments”) and duly executed by Seller, transferring all of Seller’s right, title and interest in and to the Intellectual Property Assets to Buyer;

 

(iv) the Employment Agreements duly executed by Ajesh Kapoor, and Vivek Sehgal in the form of Exhibit A hereto (the “Employment Agreements”);

 

(v) the Operating Agreement in the form of Exhibit B hereto, duly executed by the Seller;

 

(vi) the Option Agreement in the form of Exhibit C hereto, duly executed by the Seller;

 

(vii) a power of attorney in form and substance satisfactory to Buyer and duly executed by Seller;

 

(viii) the Seller Closing Certificate;

 

(ix) the FIRPTA Certificate;

 

18
 

 

(x) the certificates of the Secretary or Assistant Secretary of Seller required by Section 7.02(k) and Section 7.02(l); and

 

(xi) such other customary instruments of transfer, assumption, filings or documents, in form and substance reasonably satisfactory to Buyer, as may be required to give effect to this Agreement.

 

(b) At the Closing, Buyer shall deliver to Seller the following:

 

(i) Certificates or a book entry statement evidencing the Equity Interests;

 

(ii) the Assignment and Assumption Agreement duly executed by Buyer;

 

(iii) the Employment Agreements duly executed by Buyer;

 

(iv) the Operating Agreement in the form of Exhibit B hereto, duly executed by the Buyer;

 

(v) the Option Agreement in the form of Exhibit C hereto, duly executed by the Buyer;

 

(vi) the Buyer Closing Certificate; and

 

(vii) the certificates of the Secretary or Assistant Secretary of Buyer required by Section 7.03(h) and Section 7.03(i).

 

ARTICLE IV
Representations and warranties of seller

 

Except as set forth in the correspondingly numbered Section of the Disclosure Schedules, each of the Significant Owners and the Seller represents and warrants to Buyer that the statements contained in this ARTICLE IV are true and correct as of the date hereof.

 

Section 4.01 Organization and Qualification of Seller. Seller is a corporation duly organized, validly existing and in good standing under the Laws of the state of Delaware and has full corporate power and authority to own, operate or lease the properties and assets now owned, operated or leased by it and to carry on the Business as currently conducted. Section 4.01 of the Disclosure Schedules sets forth each jurisdiction in which Seller is licensed or qualified to do business, and Seller is duly licensed or qualified to do business and is in good standing in each jurisdiction in which the ownership of the Purchased Assets or the operation of the Business as currently conducted makes such licensing or qualification necessary.

 

19
 

 

Section 4.02 Authority of Seller. Seller has full corporate power and authority to enter into this Agreement and the Ancillary Documents to which Seller is or will be a party, to carry out its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution and delivery by Seller of this Agreement and any Ancillary Document to which Seller is or will be a party, the performance by Seller of its obligations hereunder and thereunder and the consummation by Seller of the transactions contemplated hereby and thereby have been duly authorized by all requisite corporate action on the part of Seller. This Agreement has been duly executed and delivered by Seller, and (assuming due authorization, execution and delivery by Buyer) this Agreement constitutes a legal, valid and binding obligation of Seller enforceable against Seller in accordance with its terms. When each Ancillary Document to which Seller is or will be a party has been duly executed and delivered by Seller (assuming due authorization, execution and delivery by each other party thereto), such Ancillary Document will constitute a legal and binding obligation of Seller enforceable against it in accordance with its terms.

 

Section 4.03 No Conflicts; Consents. The execution, delivery and performance by Seller of this Agreement and the Ancillary Documents to which it is a party, and the consummation of the transactions contemplated hereby and thereby, do not and will not: (a) conflict with or result in a violation or breach of, or default under, any provision of the certificate of incorporation, by-laws or other organizational documents of Seller; (b) conflict with or result in a violation or breach of any provision of any Law or Governmental Order applicable to Seller, the Business or the Purchased Assets; (c) except as set forth in Section 4.03 of the Disclosure Schedules, require the consent, notice or other action by any Person under, conflict with, result in a violation or breach of, constitute a default or an event that, with or without notice or lapse of time or both, would constitute a default under, result in the acceleration of or create in any party the right to accelerate, terminate, modify or cancel any Contract or Permit to which Seller is a party or by which Seller or the Business is bound or to which any of the Purchased Assets are subject (including any Assigned Contract); or (d) result in the creation or imposition of any Encumbrance other than Permitted Encumbrances on the Purchased Assets. No consent, approval, Permit, Governmental Order, declaration or filing with, or notice to, any Governmental Authority is required by or with respect to Seller in connection with the execution and delivery of this Agreement or any of the Ancillary Documents to which Seller is or will be a party and the consummation of the transactions contemplated hereby and thereby.

 

Section 4.04 Financial Statements. Complete copies of the audited financial statements consisting of the balance sheet of the Business as at December 31, in each of the years 2022 and 2023 and the related statements of income and retained earnings, stockholders’ equity and cash flow for the years then ended (the “Audited Financial Statements”), and unaudited financial statements consisting of the balance sheet of the Business as at March 31, 2024 and the related statements of income and retained earnings, stockholders’ equity and cash flow for the three month period then ended (the “Interim Financial Statements” and together with the Audited Financial Statements, the “Financial Statements”) are included in the Disclosure Schedules/have been delivered to Buyer. The Financial Statements have been prepared in accordance with GAAP applied on a consistent basis throughout the period involved, subject, in the case of the Interim Financial Statements, to normal and recurring year-end adjustments (the effect of which will not be materially adverse) and the absence of notes (that, if presented, would not differ materially from those presented in the Audited Financial Statements). The Financial Statements are based on the books and records of the Business, and fairly present the financial condition of the Business as of the respective dates they were prepared and the results of the operations of the Business for the periods indicated. The balance sheet of the Business as of December 31, 2023 is referred to herein as the “Balance Sheet” and the date thereof as the “Balance Sheet Date” and the balance sheet of the Business as of March 31, 2024 is referred to herein as the “Interim Balance Sheet” and the date thereof as the “Interim Balance Sheet Date”. Seller maintains a standard system of accounting for the Business established and administered in accordance with GAAP.

 

20
 

 

Section 4.05 Undisclosed Liabilities. Seller has no Liabilities with respect to the Business, except (a) those which are adequately reflected or reserved against in the Balance Sheet as of the Balance Sheet Date, and (b) those which have been incurred in the ordinary course of business consistent with past practice since the Balance Sheet Date and which are not, individually or in the aggregate, material in amount.

 

Section 4.06 Absence of Certain Changes, Events and Conditions. Since the Balance Sheet Date, the Business has been conducted in the ordinary course of business consistent with past practice, and there has not been any:

 

(a) event, occurrence or development that has had, or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect;

 

(b) declaration or payment of any dividends or distributions on or in respect of any of Seller’s capital stock or redemption, purchase or acquisition of Seller’s capital stock;

 

(c) material change in any method of accounting or accounting practice for the Business, except as required by GAAP or as disclosed in the notes to the Financial Statements;

 

(d) material change in cash management practices and policies, practices and procedures with respect to collection of Accounts Receivable, establishment of reserves for uncollectible Accounts Receivable, accrual of Accounts Receivable, inventory control, prepayment of expenses, payment of trade accounts payable, accrual of other expenses, deferral of revenue and acceptance of customer deposits;

 

(e) entry into any Contract that would constitute a Material Contract;

 

(f) incurrence, assumption or guarantee of any indebtedness for borrowed money in connection with the Business except unsecured current obligations and Liabilities incurred in the ordinary course of business consistent with past practice;

 

(g) transfer, assignment, sale or other disposition of any of the Purchased Assets shown or reflected in the Balance Sheet, except for the sale of Inventory in the ordinary course of business;

 

(h) cancellation of any debts or claims or amendment, termination or waiver of any rights constituting Purchased Assets;

 

(i) transfer or assignment of or grant of any license or sublicense under or with respect to any material Intellectual Property Assets or Intellectual Property Agreements (except non-exclusive licenses or sublicenses granted in the ordinary course of business consistent with past practice;

 

21
 

 

(j) abandonment or lapse of or failure to maintain in full force and effect any Intellectual Property Registration, or failure to take or maintain reasonable measures to protect the confidentiality or value of any Trade Secrets included in the Intellectual Property Assets;

 

(k) material damage, destruction or loss, or any material interruption in use, of any Purchased Assets, whether or not covered by insurance;

 

(l) acceleration, termination, material modification to or cancellation of any Assigned Contract or Permit;

 

(m) material capital expenditures which would constitute an Assumed Liability;

 

(n) imposition of any Encumbrance (other than Permitted Encumbrances) upon any of the Purchased Assets;

 

(o) (i) grant of any bonuses, whether monetary or otherwise, or increase in any wages, salary, severance, pension or other compensation or benefits in respect of any current or former employees, officers, directors, independent contractors or consultants of the Business, other than as provided for in any written agreements or required by applicable Law, (ii) change in the terms of employment for any employee of the Business or any termination of any employees for which the aggregate costs and expenses exceed $1,000 or (iii) action to accelerate the vesting or payment of any compensation or benefit for any current or former employee, officer, director, consultant or independent contractor of the Business;

 

(p) hiring or promoting any person as or to (as the case may be) an officer or hiring or promoting any employee below officer except to fill a vacancy in the ordinary course of business;

 

(q) adoption, modification or termination of any: (i) employment, severance, retention or other agreement with any current or former employee, officer, director, independent contractor or consultant of the Business, (ii) Benefit Plan, or (iii) collective bargaining or other agreement with a Union, in each case whether written or oral;

 

(r) any loan to (or forgiveness of any loan to), or entry into any other transaction with, any current or former directors, officers or employees of the Business;

 

(s) adoption of any plan of merger, consolidation, reorganization, liquidation or dissolution or filing of a petition in bankruptcy under any provisions of federal or state bankruptcy Law or consent to the filing of any bankruptcy petition against it under any similar Law;

 

22
 

 

(t) purchase, lease or other acquisition of the right to own, use or lease any property or assets in connection with the Business for an amount in excess of $1,000, individually (in the case of a lease, per annum) or $5,000 in the aggregate (in the case of a lease, for the entire term of the lease, not including any option term), except for purchases of Inventory or supplies in the ordinary course of business consistent with past practice;

 

(u) Contract to do any of the foregoing, or any action or omission that would result in any of the foregoing.

 

Section 4.07 Material Contracts.

 

(a) Section 4.07(a) of the Disclosure Schedules lists each of the following Contracts (x) by which any of the Purchased Assets are bound or affected or (y) to which Seller is a party or by which it is bound in connection with the Business or the Purchased Assets (such Contracts, together with all Contracts concerning the occupancy, management or operation of any Real Property (including without limitation, brokerage contracts) listed or otherwise disclosed in Section 4.10(a) of the Disclosure Schedules and all Intellectual Property Agreements set forth in Section 4.11(b) of the Disclosure Schedules, being “Material Contracts”):

 

(i) all Contracts involving aggregate consideration in excess of $10,000 and which, in each case, cannot be cancelled without penalty or without more than ninety (90)days’ notice;

 

(ii) all Contracts that require Seller to purchase or sell a stated portion of the requirements or outputs of the Business or that contain “take or pay” provisions;

 

(iii) all Contracts that provide for the indemnification of any Person or the assumption of any Tax, environmental or other Liability of any Person;

 

(iv) all Contracts that relate to the acquisition or disposition of any business, a material amount of stock or assets of any other Person or any real property (whether by merger, sale of stock, sale of assets or otherwise);

 

(v) all broker, distributor, dealer, manufacturer’s representative, franchise, agency, sales promotion, market research, marketing consulting and advertising Contracts;

 

(vi) all employment agreements and Contracts with independent contractors or consultants (or similar arrangements) and which are not cancellable without material penalty or without more than 90days’ notice;

 

(vii) except for Contracts relating to trade payables, all Contracts relating to indebtedness (including, without limitation, guarantees);

 

23
 

 

(viii) all Contracts with any Governmental Authority (“Government Contracts”);

 

(ix) all Contracts that limit or purport to limit the ability of Seller to compete in any line of business or with any Person or in any geographic area or during any period of time;

 

(x) all joint venture, partnership or similar Contracts;

 

(xi) all Contracts for the sale of any of the Purchased Assets or for the grant to any Person of any option, right of first refusal or preferential or similar right to purchase any of the Purchased Assets;

 

(xii) all powers of attorney with respect to the Business or any Purchased Asset;

 

(xiii) all collective bargaining agreements or Contracts with any Union; and

 

(xiv) all other Contracts that are material to the Purchased Assets or the operation of the Business and not previously disclosed pursuant to this Section 4.07.

 

(b) Each Material Contract is in full force and effect and is a valid and binding agreement enforceable against Seller and, to Seller’s Knowledge, in accordance with its terms. None of Seller or, to Seller’s Knowledge, any other party thereto is in breach of or default under (or is alleged to be in breach of or default under) in any material respect, or has provided or received any notice of any intention to terminate, any Material Contract. No event or circumstance has occurred that, with notice or lapse of time or both, would constitute an event of default under any Material Contract or result in a termination thereof or would cause or permit the acceleration or other changes of any right or obligation or the loss of any benefit thereunder. Complete and correct copies of each Material Contract (including all modifications, amendments and supplements thereto and waivers thereunder) have been made available to Buyer. There are no material disputes pending or threatened under any Contract included in the Purchased Assets.

 

Section 4.08 Title to Purchased Assets. Seller has good and valid title to, or a valid leasehold interest in, all of the Purchased Assets. All such Purchased Assets (including leasehold interests) are free and clear of Encumbrances except for the following (collectively referred to as “Permitted Encumbrances”):

 

(a) those items set forth in Section 4.08 of the Disclosure Schedules;

 

(b) liens for Taxes not yet due and payable;

 

(c) mechanics’, carriers’, workmen’s, repairmen’s or other like liens arising or incurred in the ordinary course of business consistent with past practice or amounts that are not delinquent and which are not, individually or in the aggregate, material to the Business or the Purchased Assets;

 

24
 

 

(d) easements, rights of way, zoning ordinances and other similar encumbrances affecting Real Property which are not, individually or in the aggregate, material to the Business or the Purchased Assets, which do not prohibit or interfere with the current operation of any Real Property and which do not render title to any Real Property unmarketable; or

 

(e) other than with respect to Owned Real Property, liens arising under original purchase price conditional sales contracts and equipment leases with third parties entered into in the ordinary course of business consistent with past practice which are not, individually or in the aggregate, material to the Business or the Purchased Assets.

 

Section 4.09 Condition and Sufficiency of Assets. Except as set forth in Section 4.09 of the Disclosure Schedules, the buildings, plants, structures, furniture, fixtures, machinery, equipment, vehicles and other items of tangible personal property included in the Purchased Assets are structurally sound, are in good operating condition and repair, and are adequate for the uses to which they are being put, and none of such buildings, plants, structures, furniture, fixtures, machinery, equipment, vehicles and other items of tangible personal property is in need of maintenance or repairs except for ordinary, routine maintenance and repairs that are not material in nature or cost. The Purchased Assets are sufficient for the continued conduct of the Business after the Closing in substantially the same manner as conducted prior to the Closing and constitute all of the rights, property and assets necessary to conduct the Business as currently conducted. None of the Excluded Assets are material to the Business.

 

Section 4.10 Real Property.

 

(a) Section 4.10(a) of the Disclosure Schedules sets forth each parcel of real property owned by Seller and used in or necessary for the conduct of the Business as currently conducted (together with all buildings, fixtures, structures and improvements situated thereon and all easements, rights-of-way and other rights and privileges appurtenant thereto, collectively, the “Owned Real Property”), including with respect to each property, the address location and use. Seller has delivered to Buyer copies of the deeds and other instruments (as recorded) by which Seller acquired such parcel of Owned Real Property, and copies of all title insurance policies, opinions, abstracts and surveys in the possession of Seller with respect to such parcel. With respect to each parcel of Real Property:

 

(i) Seller has good and marketable fee simple title, free and clear of all Encumbrances, except (A) Permitted Encumbrances and (B) those Encumbrances set forth on Section 4.10(a) of the Disclosure Schedules;

 

(ii) except as set forth on Section 4.10(a)(ii) of the Disclosure Schedules, Seller has not leased or otherwise granted to any Person the right to use or occupy such Owned Real Property or any portion thereof; and

 

25
 

 

(iii) there are no unrecorded outstanding options, rights of first offer or rights of first refusal to purchase such Owned Real Property or any portion thereof or interest therein.

 

(b) Section 4.10(b) of the Disclosure Schedules sets forth each parcel of real property leased by Seller and used in or necessary for the conduct of the Business as currently conducted (together with all rights, title and interest of Seller in and to leasehold improvements relating thereto, including, but not limited to, security deposits, reserves or prepaid rents paid in connection therewith, collectively, the “Leased Real Property”), and a true and complete list of all leases, subleases, licenses, concessions and other agreements (whether written or oral), including all amendments, extensions renewals, guaranties and other agreements with respect thereto, pursuant to which Seller holds any Leased Real Property (collectively, the “Leases”). Seller has delivered to Buyer a true and complete copy of each Lease. With respect to each Lease:

 

(i) such Lease is valid, binding, enforceable and in full force and effect, and Seller enjoys peaceful and undisturbed possession of the Leased Real Property;

 

(ii) Seller is not in breach or default under such Lease, and no event has occurred or circumstance exists which, with the delivery of notice, passage of time or both, would constitute such a breach or default, and Seller has paid all rent due and payable under such Lease;

 

(iii) Seller has not received nor given any notice of any default or event that with notice or lapse of time, or both, would constitute a default by Seller under any of the Leases and, to the Knowledge of Seller, no other party is in default thereof, and no party to any Lease has exercised any termination rights with respect thereto;

 

(iv) Seller has not subleased, assigned or otherwise granted to any Person the right to use or occupy such Leased Real Property or any portion thereof; and

 

(v) Seller has not pledged, mortgaged or otherwise granted an Encumbrance on its leasehold interest in any Leased Real Property.

 

(c) Seller has not received any written notice of (i) violations of building codes and/or zoning ordinances or other governmental or regulatory Laws affecting the Real Property, (ii) existing, pending or threatened condemnation proceedings affecting the Real Property, or (iii) existing, pending or threatened zoning, building code or other moratorium proceedings, or similar matters which could reasonably be expected to materially and adversely affect the ability to operate the Real Property as currently operated. Neither the whole nor any material portion of any Real Property has been damaged or destroyed by fire or other casualty.

 

(d) The Real Property is sufficient for the continued conduct of the Business after the Closing in substantially the same manner as conducted prior to the Closing and constitutes all of the real property necessary to conduct the Business as currently conducted.

 

26
 

 

Section 4.11 Intellectual Property.

 

(a) Section 4.11(a) of the Disclosure Schedules contains a correct, current and complete list of: (i) all Intellectual Property Registrations, specifying as to each, as applicable: the title, mark, or design; the jurisdiction by or in which it has been issued, registered or filed; the patent, registration or application serial number; the issue, registration or filing date; and the current status; (ii) all unregistered Trademarks included in the Intellectual Property Assets; (iii) all proprietary Software included in the Intellectual Property Assets; and (iv) all other Intellectual Property Assets that are used or held for use in the conduct of the Business as currently conducted or proposed to be conducted.

 

(b) Section 4.11(b) of the Disclosure Schedules contains a correct, current and complete list of all Intellectual Property Agreements, specifying for each the date, title, and parties thereto, and separately identifying the Intellectual Property Agreements: (i) under which Seller is a licensor or otherwise grants to any Person any right or interest relating to any Intellectual Property Asset; (ii) under which Seller is a licensee or otherwise granted any right or interest relating to the Intellectual Property of any Person; and (iii) which otherwise relate to the Seller’s ownership or use of any Intellectual Property in the conduct of the Business as currently conducted or proposed to be conducted, in each case identifying the Intellectual Property covered by such Intellectual Property Agreement]. Seller has provided Buyer with true and complete copies (or in the case of any oral agreements, a complete and correct written description) of all such Intellectual Property Agreements, including all modifications, amendments and supplements thereto and waivers thereunder. Each Intellectual Property Agreement is valid and binding on Seller in accordance with its terms and is in full force and effect. Neither Seller nor any other party thereto is, or is alleged to be, in breach of or default under, or has provided or received any notice of breach of, default under, or intention to terminate (including by non-renewal), any Intellectual Property Agreement.

 

(c) Except as set forth in Section 4.11(c) of the Disclosure Schedules, Seller is the sole and exclusive legal and beneficial, and with respect to the Intellectual Property Registrations, record, owner of all right, title and interest in and to the Intellectual Property Assets, and has the valid and enforceable right to use all other Intellectual Property used or held for use in or necessary for the conduct of the Business as currently conducted or as proposed to be conducted, in each case, free and clear of Encumbrances other than Permitted Encumbrances. The Intellectual Property Assets and Licensed Intellectual Property are all of the Intellectual Property necessary to operate the Business as presently conducted or proposed to be conducted. Seller has entered into binding, valid and enforceable written Contracts with each current and former employee and independent contractor who is or was involved in or has contributed to the invention, creation, or development of any Intellectual Property during the course of employment or engagement with Seller] whereby such employee or independent contractor (i) acknowledges Seller’s exclusive ownership of all Intellectual Property Assets invented, created or developed by such employee or independent contractor within the scope of his or her employment or engagement with Seller; (ii) grants to Seller a present, irrevocable assignment of any ownership interest such employee or independent contractor may have in or to such Intellectual Property, to the extent such Intellectual Property does not constitute a “work made for hire” under Applicable Law; and (iii) irrevocably waives any right or interest, including any moral rights, regarding such Intellectual Property, to the extent permitted by applicable Law. Seller has provided Buyer with true and complete copies of all such Contracts. All assignments and other instruments necessary to establish, record, and perfect Seller’s ownership interest in the Intellectual Property Registrations have been validly executed, delivered, and filed with the relevant Governmental Authorities and authorized registrars.

 

27
 

 

(d) Neither the execution, delivery, or performance of this Agreement, nor the consummation of the transactions contemplated hereunder, will result in the loss or impairment of or payment of any additional amounts with respect to, or require the consent of any other Person in respect of, the Buyer’s right to own or use any Intellectual Property Assets or Licensed Intellectual Property in the conduct of the Business as currently conducted and as proposed to be conducted. Immediately following the Closing, all Intellectual Property Assets will be owned or available for use by Buyer on the same terms as they were owned or available for use by Seller immediately prior to the Closing.

 

(e) All of the Intellectual Property Assets and Licensed Intellectual Property are valid and enforceable, and all Intellectual Property Registrations are subsisting and in full force and effect. Seller has taken all reasonable and necessary steps to maintain and enforce the Intellectual Property Assets and Licensed Intellectual Property and to preserve the confidentiality of all Trade Secrets included in the Intellectual Property Assets, including by requiring all Persons having access thereto to execute binding, written non-disclosure agreements. All required filings and fees related to the Intellectual Property Registrations have been timely submitted with and paid to the relevant Governmental Authorities and authorized registrars. Seller has provided Buyer with true and complete copies of all file histories, documents, certificates, office actions, correspondence, assignments, and other instruments relating to the Intellectual Property Registrations.

 

(f) The conduct of the Business as currently and formerly conducted and as proposed to be conducted, including the use of the Intellectual Property Assets and Licensed Intellectual Property in connection therewith, and the products, processes, and services of the Business have not infringed, misappropriated, or otherwise violated and will not infringe, misappropriate, or otherwise violate the Intellectual Property or other rights of any Person. No Person has infringed, misappropriated, or otherwise violated any Intellectual Property Assets or Licensed Intellectual Property.

 

28
 

 

(g) There are no Actions (including any opposition, cancellation, revocation, review, or other proceeding), whether settled, pending or threatened (including in the form of offers to obtain a license): (i) alleging any infringement, misappropriation, or other violation of the Intellectual Property of any Person by Seller in the conduct of the Business; (ii) challenging the validity, enforceability, registrability, patentability, or ownership of any Intellectual Property Assets or Licensed Intellectual Property; or (iii) by Seller or any other Person alleging any infringement, misappropriation, or other violation by any Person of any Intellectual Property Assets. Seller is not aware of any facts or circumstances that could reasonably be expected to give rise to any such Action. Seller is not subject to any outstanding or prospective Governmental Order (including any motion or petition therefor) that does or could reasonably be expected to restrict or impair the use of any Intellectual Property Assets or Licensed Intellectual Property.

 

(h) Section 4.11(h) of the Seller Disclosure Schedules contains a correct, current, and complete list of all social media accounts used by Seller in the conduct of the Business. Seller has complied with all terms of use, terms of service, and other Contracts and all associated policies and guidelines relating to its use of any social media platforms, sites, or services in the conduct of the Business (collectively, “Platform Agreements”). There are no Actions settled, pending, or threatened alleging (i) any breach or other violation of any Platform Agreement by Seller; or (ii) defamation, any violation of publicity rights of any Person, or any other violation by Seller in connection with its use of social media in the conduct of the Business.

 

(i) All Business IT Systems are in good working condition and are sufficient for the operation of the Business as currently conducted and as proposed to be conducted. In the past 18 months, there has been no malfunction, failure, continued substandard performance, denial-of-service, or other cyber incident, including any cyberattack, or other impairment of the Business IT Systems that has resulted or is reasonably likely to result in disruption or damage to the Business and that has not been remedied. Seller has taken all commercially reasonable steps to safeguard the confidentiality, availability, security, and integrity of the Business IT Systems, including implementing and maintaining appropriate backup, disaster recovery, and Software and hardware support arrangements.

 

(j) Seller has complied with all applicable Laws and all internal or publicly posted policies, notices, and statements concerning the collection, use, processing, storage, transfer, and security of personal information in the conduct of the Business. In the past 18 months, Seller has not (i) experienced any actual, alleged, or suspected data breach or other security incident involving personal information in its possession or control or (ii) been subject to or received any written]notice of any audit, investigation, complaint, or other Action by any Governmental Authority or other Person concerning the Company’s collection, use, processing, storage, transfer, or protection of personal information or actual, alleged, or suspected violation of any applicable Law concerning privacy, data security, or data breach notification, in each case in connection with the conduct of the Business, and to Seller’s Knowledge, there are no facts or circumstances that could reasonably be expected to give rise to any such Action.

 

29
 

 

Section 4.12 Inventory. All Inventory, whether or not reflected in the Balance Sheet, consists of a quality and quantity usable and salable in the ordinary course of business consistent with past practice, except for obsolete, damaged, defective or slow-moving items that have been written off or written down to fair market value or for which adequate reserves have been established. All Inventory is owned by Seller free and clear of all Encumbrances, and no Inventory is held on a consignment basis. The quantities of each item of Inventory (whether raw materials, work-in-process or finished goods) are not excessive, but are reasonable in the present circumstances of Seller.

 

Section 4.13 Accounts Receivable. The Accounts Receivable reflected on the Interim Balance Sheet and the Accounts Receivable arising after the Interim Balance Sheet Date (a) have arisen from bona fide transactions entered into by Seller involving the sale of goods or the rendering of services in the ordinary course of business consistent with past practice; and (b) constitute only valid, undisputed claims of Seller not subject to claims of set-off or other defenses or counterclaims other than normal cash discounts accrued in the ordinary course of business consistent with past practice; and (c) subject to a reserve for bad debts shown on the Interim Balance Sheet or, with respect to Accounts Receivable arising after the Interim Balance Sheet Date, on the accounting records of the Business, are collectible in full within 90 days after billing. The reserve for bad debts shown on the Interim Balance Sheet or, with respect to Accounts Receivable arising after the Interim Balance Sheet Date, on the accounting records of the Business have been determined in accordance with GAAP, consistently applied, subject to normal year-end adjustments and the absence of disclosures normally made in footnotes.

 

Section 4.14 Customers and Suppliers.

 

(a) Section 4.14(a) of the Disclosure Schedules sets forth with respect to the Business (i) each customer who has paid aggregate consideration to Seller for goods or services rendered in an amount greater than or equal to $10,000 for each of the two most recent fiscal years (collectively, the “Material Customers”); and (ii) the amount of consideration paid by each Material Customer during such periods. Except as set forth in Section 4.14(a) of the Disclosure Schedules, Seller has not received any notice, and has no reason to believe, that any of the Material Customers has ceased, or intends to cease after the Closing, to use the goods or services of the Business or to otherwise terminate or materially reduce its relationship with the Business.

 

(b) Section 4.14(b) of the Disclosure Schedules sets forth with respect to the Business (i) each supplier to whom Seller has paid consideration for goods or services rendered in an amount greater than or equal to $10,000 for each of the two most recent fiscal years (collectively, the “Material Suppliers”); and (ii) the amount of purchases from each Material Supplier during such periods. Except as set forth in Section 4.14(b) of the Disclosure Schedules, Seller has not received any notice, and has no reason to believe, that any of the Material Suppliers has ceased, or intends to cease, to supply goods or services to the Business or to otherwise terminate or materially reduce its relationship with the Business.

 

30
 

 

Section 4.15 Insurance. Section 4.15 of the Disclosure Schedules sets forth (a) a true and complete list of all current policies or binders of fire, liability, product liability, umbrella liability, real and personal property, workers’ compensation, vehicular, fiduciary liability and other casualty and property insurance maintained by Seller or its Affiliates and relating to the Business, the Purchased Assets or the Assumed Liabilities (collectively, the “Insurance Policies”); and (b) with respect to the Business, the Purchased Assets or the Assumed Liabilities, a list of all pending claims and the claims history for Seller since January 1, 2024. Except as set forth on Section 4.15 of the Disclosure Schedules, there are no claims related to the Business, the Purchased Assets or the Assumed Liabilities pending under any Insurance Policies as to which coverage has been questioned, denied or disputed or in respect of which there is an outstanding reservation of rights. Neither Seller nor any of its Affiliates has received any written notice of cancellation of, premium increase with respect to, or alteration of coverage under, any of the Insurance Policies. All premiums due on the Insurance Policies have either been paid or, if not yet due, accrued. All the Insurance Policies (a) are in full force and effect and enforceable in accordance with their terms; (b) are provided by carriers who are financially solvent; and (c) have not been subject to any lapse in coverage. None of Seller or any of its Affiliates is in default under, or has otherwise failed to comply with, in any material respect, any provision contained in any Insurance Policy. The Insurance Policies are of the type and in the amounts customarily carried by Persons conducting a business similar to the Business and are sufficient for compliance with all applicable Laws and Contracts to which Seller is a party or by which it is bound. True and complete copies of the Insurance Policies have been made available to Buyer.

 

Section 4.16 Legal Proceedings; Governmental Orders.

 

(a) Except as set forth in Section 4.16(a) of the Disclosure Schedules, there are no Actions pending or, to Seller’s Knowledge, threatened against or by Seller (a) relating to or affecting the Business, the Purchased Assets or the Assumed Liabilities; or (b) that challenge or seek to prevent, enjoin or otherwise delay the transactions contemplated by this Agreement. No event has occurred or circumstances exist that may give rise to, or serve as a basis for, any such Action.

 

(b) Except as set forth in Section 4.16(b) of the Disclosure Schedules, there are no outstanding Governmental Orders and no unsatisfied judgments, penalties or awards against, relating to or affecting the Business. Seller is in compliance with the terms of each Governmental Order set forth in Section 4.16(b) of the Disclosure Schedules. No event has occurred or circumstances exist that may constitute or result in (with or without notice or lapse of time) a violation of any such Governmental Order.

 

Section 4.17 Compliance With Laws; Permits.

 

(a) Except as set forth in Section 4.17(a) of the Disclosure Schedules, Seller has complied, and is now complying, with all Laws applicable to the conduct of the Business as currently conducted or the ownership and use of the Purchased Assets.

 

(b) All Permits required for Seller to conduct the Business as currently conducted or for the ownership and use of the Purchased Assets have been obtained by Seller and are valid and in full force and effect. All fees and charges with respect to such Permits as of the date hereof have been paid in full. Section 4.17(b) of the Disclosure Schedules lists all current Permits issued to Seller which are related to the conduct of the Business as currently conducted or the ownership and use of the Purchased Assets, including the names of the Permits and their respective dates of issuance and expiration. Seller has complied and is now complying with the terms of all Permits listed on Section 4.17(b) of the Disclosure Schedules. No event has occurred that, with or without notice or lapse of time or both, would reasonably be expected to result in the revocation, suspension, lapse or limitation of any Permit set forth in Section 4.17(b) of the Disclosure Schedules.

 

31
 

 

Section 4.18 Environmental Matters.

 

(a) The operations of Seller with respect to the Business and the Purchased Assets are currently and have been in compliance with all Environmental Laws. Seller has not received from any Person, with respect to the Business or the Purchased Assets, any: (i) Environmental Notice or Environmental Claim; or (ii) written request for information pursuant to Environmental Law, which, in each case, either remains pending or unresolved, or is the source of ongoing obligations or requirements as of the Closing Date.

 

(b) Seller has obtained and is in material compliance with all Environmental Permits (each of which is disclosed in Section 4.18(b) of the Disclosure Schedules) necessary for the conduct of the Business as currently conducted or the ownership, lease, operation or use of the Purchased Assets and all such Environmental Permits are in full force and effect and shall be maintained in full force and effect by Seller through the Closing Date in accordance with Environmental Law, and Seller is not aware of any condition, event or circumstance that might prevent or impede, after the Closing Date, the conduct of the Business as currently conducted or the ownership, lease, operation or use of the Purchased Assets. With respect to any such Environmental Permits, Seller has undertaken, or will undertake prior to the Closing Date, all measures necessary to facilitate transferability of the same, and Seller is not aware of any condition, event or circumstance that might prevent or impede the transferability of the same, and has not received any Environmental Notice or written communication regarding any material adverse change in the status or terms and conditions of the same.

 

(c) None of the Business or the Purchased Assets or any real property currently or formerly owned, leased or operated by Seller in connection with the Business is listed on, or has been proposed for listing on, the National Priorities List (or CERCLIS) under CERCLA, or any similar state list.

 

(d) There has been no Release of Hazardous Materials in contravention of Environmental Law with respect to the Business or the Purchased Assets or any real property currently or formerly owned, leased or operated by Seller in connection with the Business, and Seller has not received an Environmental Notice that any of the Business or the Purchased Assets or real property currently or formerly owned, leased or operated by Seller in connection with the Business (including soils, groundwater, surface water, buildings and other structure located thereon) has been contaminated with any Hazardous Material which could reasonably be expected to result in an Environmental Claim against, or a violation of Environmental Law or term of any Environmental Permit by, Seller.

 

32
 

 

(e) Section 4.18(e) of the Disclosure Schedules contains a complete and accurate list of all active or abandoned aboveground or underground storage tanks owned or operated by Seller in connection with the Business or the Purchased Assets.

 

(f) Section 4.18(f) of the Disclosure Schedules contains a complete and accurate list of all off-site Hazardous Materials treatment, storage, or disposal facilities or locations used by Seller and any predecessors in connection with the Business or the Purchased Assets as to which Seller may retain liability, and none of these facilities or locations has been placed or proposed for placement on the National Priorities List (or CERCLIS) under CERCLA, or any similar state list, and Seller has not received any Environmental Notice regarding potential liabilities with respect to such off-site Hazardous Materials treatment, storage, or disposal facilities or locations used by Seller.

 

(g) Seller has not retained or assumed, by contract or operation of Law, any liabilities or obligations of third parties under Environmental Law.

 

(h) Seller has provided or otherwise made available to Buyer and listed in Section 4.18(h) of the Disclosure Schedules: (i) any and all environmental reports, studies, audits, records, sampling data, site assessments, risk assessments, economic models and other similar documents with respect to the Business or the Purchased Assets or any real property currently or formerly owned, leased or operated by Seller in connection with the Business which are in the possession or control of Seller related to compliance with Environmental Laws, Environmental Claims or an Environmental Notice or the Release of Hazardous Materials; and (ii) any and all material documents concerning planned or anticipated capital expenditures required to reduce, offset, limit or otherwise control pollution and/or emissions, manage waste or otherwise ensure compliance with current or future Environmental Laws (including, without limitation, costs of remediation, pollution control equipment and operational changes).

 

(i) Seller is not aware of or reasonably anticipates, as of the Closing Date, any condition, event or circumstance concerning the Release or regulation of Hazardous Materials that might, after the Closing Date, prevent, impede or materially increase the costs associated with the ownership, lease, operation, performance or use of the Business or the Purchased Assets as currently carried out.

 

Section 4.19 Employee Benefit Matters.

 

(a) Section 4.19(a) of the Disclosure Schedules contains a true and complete list of each pension, benefit, retirement, compensation, employment, consulting, profit-sharing, deferred compensation, incentive, bonus, performance award, phantom equity, stock or stock-based, change in control, retention, severance, vacation, paid time off (PTO), medical, vision, dental, disability, welfare, Code Section 125 cafeteria, fringe-benefit and other similar agreement, plan, policy, program or arrangement (and any amendments thereto), in each case whether or not reduced to writing and whether funded or unfunded, including each “employee benefit plan” within the meaning of Section 3(3) of ERISA, whether or not tax-qualified and whether or not subject to ERISA, which is or has been maintained, sponsored, contributed to, or required to be contributed to by Seller for the benefit of any current or former employee, officer, director, retiree, independent contractor or consultant of the Business or any spouse or dependent of such individual, or under which Seller or any of its ERISA Affiliates has or may have any Liability, or with respect to which Buyer or any of its Affiliates would reasonably be expected to have any Liability, contingent or otherwise (as listed on Section 4.19(a) of the Disclosure Schedules, each, a “Benefit Plan”).

 

33
 

 

(b) With respect to each Benefit Plan, Seller has made available to Buyer accurate, current and complete copies of each of the following: (i) where the Benefit Plan has been reduced to writing, the plan document together with all amendments; (ii) where the Benefit Plan has not been reduced to writing, a written summary of all material plan terms; (iii) where applicable, copies of any trust agreements or other funding arrangements, custodial agreements, insurance policies and contracts, administration agreements and similar agreements, and investment management or investment advisory agreements, now in effect or required in the future as a result of the transactions contemplated by this Agreement or otherwise; (iv) copies of any summary plan descriptions, summaries of material modifications, summaries of benefits and coverage, COBRA communications, employee handbooks and any other written communications (or a description of any oral communications) relating to any Benefit Plan; (v) in the case of any Benefit Plan that is intended to be qualified under Section 401(a) of the Code, a copy of the most recent determination, opinion or advisory letter from the Internal Revenue Service and any legal opinions issued thereafter with respect to such Benefit Plan’s continued qualification; (vi) in the case of any Benefit Plan for which a Form 5500 must be filed, a copy of the two most recently filed Forms 5500, with all corresponding schedules and financial statements attached; (vii) actuarial valuations and reports related to any Benefit Plans with respect to the most recently completed plan years; (viii) the most recent nondiscrimination tests performed under the Code; and (ix) copies of material notices, letters or other correspondence from the Internal Revenue Service, U.S. Department of Labor, U.S. Department of Health and Human Services, Pension Benefit Guaranty Corporation or other Governmental Authority relating to the Benefit Plan.

 

(c) There has been no amendment to, announcement by Seller or any of its Affiliates relating to, or change in employee participation or coverage under, any Benefit Plan or collective bargaining agreement that would increase the annual expense of maintaining such plan above the level of the expense incurred for the most recently completed fiscal year (other than on a de minimis basis) with respect to any director, officer, employee, consultant or independent contractor of the Business, as applicable. Neither Seller nor any of its Affiliates has any commitment or obligation or has made any representations to any director, officer, employee, consultant or independent contractor of the Business, whether or not legally binding, to adopt, amend, modify or terminate any Benefit Plan or any collective bargaining agreement.

 

(d) Each Benefit Plan that is subject to Section 409A of the Code has been administered in compliance with its terms and the operational and documentary requirements of Section 409A of the Code and all applicable regulatory guidance (including, notices, rulings and proposed and final regulations) thereunder. Seller does not have any obligation to gross up, indemnify or otherwise reimburse any individual for any excise taxes, interest or penalties incurred pursuant to Section 409A of the Code.

 

34
 

 

(e) Except as set forth in Section 4.19(e) of the Disclosure Schedules, n/N]either the execution of this Agreement nor any of the transactions contemplated by this Agreement will (either alone or upon the occurrence of any additional or subsequent events): (i) entitle any current or former director, officer, employee, independent contractor or consultant of the Business to severance pay or any other payment; (ii) accelerate the time of payment, funding or vesting, or increase the amount of compensation (including stock-based compensation) due to any such individual; (iii) increase the amount payable under or result in any other material obligation pursuant to any Benefit Plan; (iv) result in “excess parachute payments” within the meaning of Section 280G(b) of the Code; or (v) require a “gross-up” or other payment to any “disqualified individual” within the meaning of Section 280G(c) of the Code. Seller has made available to Buyer true and complete copies of any Section 280G calculations prepared (whether or not final) with respect to any disqualified individual in connection with the transactions.

 

Section 4.20 Employment Matters.

 

(a) Section 4.20(a) of the Disclosure Schedules contains a list of all persons who are employees, independent contractors or consultants of the Business as of the date hereof, including any employee who is on a leave of absence of any nature, paid or unpaid, authorized or unauthorized, and sets forth for each such individual the following: (i) name; (ii) title or position (including whether full-time or part-time); (iii) hire or retention date; (iv) current annual base compensation rate or contract fee; (v) commission, bonus or other incentive-based compensation; and (vi) a description of the fringe benefits provided to each such individual as of the date hereof. Except as set forth in Section 4.20(a) of the Disclosure Schedules, as of the date hereof, all compensation, including wages, commissions, bonuses, fees and other compensation, payable to all employees, independent contractors or consultants of the Business for services performed on or prior to the date hereof have been paid in full and there are no outstanding agreements, understandings or commitments of Seller with respect to any compensation, commissions, bonuses or fees.

 

(b) Except as set forth in Section 4.20(b) of the Disclosure Schedules, Seller is not, and has not been for the past six years, a party to, bound by, or negotiating any collective bargaining agreement or other Contract with a union, works council or labor organization (collectively, “Union”), and there is not, and has not been for the past six years, any Union representing or purporting to represent any employee of Seller, and, to Seller’s Knowledge, no Union or group of employees is seeking or has sought to organize employees for the purpose of collective bargaining. Except as set forth in Section 4.20(b) of the Disclosure Schedules, there has never been, nor has there been any threat of, any strike, slowdown, work stoppage, lockout, concerted refusal to work overtime or other similar labor disruption or dispute affecting Seller or any employees of the Business. Seller has no duty to bargain with any Union.

 

35
 

 

(c) Seller is and has been in compliance in all material respects with the terms of the collective bargaining agreements and other Contracts listed on Section 4.20(b) of the Disclosure Schedules and all applicable Laws pertaining to employment and employment practices to the extent they relate to employees, consultants and independent contractors of the Business, including all Laws relating to labor relations, equal employment opportunities, fair employment practices, employment discrimination, harassment, retaliation, reasonable accommodation, disability rights or benefits, immigration, wages, hours, overtime compensation, child labor, hiring, promotion and termination of employees, working conditions, meal and break periods, privacy, health and safety, workers’ compensation, leaves of absence, paid sick leave and unemployment insurance. All individuals characterized and treated by Seller as consultants or independent contractors of the Business are properly treated as independent contractors under all applicable Laws. All employees of the Business classified as exempt under the Fair Labor Standards Act and state and local wage and hour laws are properly classified in all material respects. Seller is in compliance with and has complied with all immigration laws, including Form I-9 requirements and any applicable mandatory E-Verify obligations. Except as set forth in Section 4.20(c), there are no Actions against Seller pending, or to the Seller’s Knowledge, threatened to be brought or filed, by or with any Governmental Authority or arbitrator in connection with the employment of any current or former applicant, employee, consultant, volunteer, intern or independent contractor of the Business, including, without limitation, any charge, investigation or claim relating to unfair labor practices, equal employment opportunities, fair employment practices, employment discrimination, harassment, retaliation, reasonable accommodation, disability rights or benefits, immigration, wages, hours, overtime compensation, employee classification, child labor, hiring, promotion and termination of employees, working conditions, meal and break periods, privacy, health and safety, workers’ compensation, leaves of absence, paid sick leave, unemployment insurance or any other employment related matter arising under applicable Laws.

 

Section 4.21 Taxes. Except as set forth in Section 4.21 of the Disclosure Schedules:

 

(a) All Tax Returns with respect to the Business required to be filed by Seller for any Pre-Closing Tax Period have been, or will be, timely filed. Such Tax Returns are, or will be, true, complete and correct in all respects. All Taxes due and owing by Seller (whether or not shown on any Tax Return) have been, or will be, timely paid.

 

(b) Seller has withheld and paid each Tax required to have been withheld and paid in connection with amounts paid or owing to any Employee, independent contractor, creditor, customer, shareholder or other party, and complied with all information reporting and backup withholding provisions of applicable Law.

 

(c) No extensions or waivers of statutes of limitations have been given or requested with respect to any Taxes of Seller.

 

(d) All deficiencies asserted, or assessments made, against Seller as a result of any examinations by any taxing authority have been fully paid.

 

36
 

 

(e) Seller is not a party to any Action by any taxing authority. There are no pending or threatened Actions by any taxing authority.

 

(f) There are no Encumbrances for Taxes upon any of the Purchased Assets nor, to Seller’s Knowledge, is any taxing authority in the process of imposing any Encumbrances for Taxes on any of the Purchased Assets (other than for current Taxes not yet due and payable).

 

(g) Seller is not a “foreign person” as that term is used in Treasury Regulations Section 1.1445-2.

 

(h) Seller is not, and has not been, a party to, or a promoter of, a “reportable transaction” within the meaning of Section 6707A(c)(1) of the Code and Treasury Regulations Section 1.6011 4(b).

 

Section 4.22 Related Party Transactions. Except as set forth on Section 4.22 of the Disclosure Schedules, there are no Contracts or other arrangements involving the Business in which Seller, its Affiliates, or any of its or their respective directors, officers, or employees or any immediate family members thereof is a party, has a financial interest, or otherwise owns or leases any Purchased Asset.

 

Section 4.23 Equity Interests.

 

(a) Seller understands that the Equity Interests are “restricted securities” and have not been registered under the Securities Act or any applicable state securities law and is acquiring the Equity Interests as principal for its own account and not with a view to or for distributing or reselling such Equity Interests or any part thereof in violation of the Securities Act or any applicable state securities law, has no present intention of distributing any of such Equity Interests in violation of the Securities Act or any applicable state securities law and has no direct or indirect arrangement or understandings with any other persons to distribute or regarding the distribution of such Equity Interests in violation of the Securities Act or any applicable state securities law.

 

(b) Seller is: (i) an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7), (a)(8), (a)(9), (a)(12) or (a)(13) under the Securities Act or (ii) a “qualified institutional buyer” as defined in Rule 144A(a) under the Securities Act. Such Seller hereby represents that neither such Seller nor any of its Rule 506(d) Related Parties (as defined below) is a “bad actor” within the meaning of Rule 506(d) promulgated under the Securities Act. For purposes of this Agreement, “Rule 506(d) Related Party” shall mean a person or entity covered by the “Bad Actor disqualification” provision of Rule 506(d) of the Securities Act.

 

(c) Seller, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Equity Interests, and has so evaluated the merits and risks of such investment. Seller is able to bear the economic risk of an investment in the Equity Interests and, at the present time, is able to afford a complete loss of such investment.

 

37
 

 

Section 4.24 Brokers. No broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the transactions contemplated by this Agreement or any Ancillary Document based upon arrangements made by or on behalf of Seller.

 

Section 4.25 Full Disclosure. No representation or warranty by Seller in this Agreement and no statement contained in the Disclosure Schedules to this Agreement or any certificate or other document furnished or to be furnished to Buyer pursuant to this Agreement contains any untrue statement of a material fact, or omits to state a material fact necessary to make the statements contained therein, in light of the circumstances in which they are made, not misleading.

 

ARTICLE V
Representations and warranties of buyer

 

Except as set forth in the correspondingly numbered Section of the Disclosure Schedules, Buyer represents and warrants to Seller that the statements contained in this ARTICLE V are true and correct as of the date hereof.

 

Section 5.01 Organization of Buyer. Buyer is a corporation duly organized, validly existing and in good standing under the Laws of the state of Delaware.

 

Section 5.02 Authority of Buyer. Buyer has full corporate power and authority to enter into this Agreement and the Ancillary Documents to which Buyer is or will be a party, to carry out its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution and delivery by Buyer of this Agreement and any Ancillary Document to which Buyer is or will be a party, the performance by Buyer of its obligations hereunder and thereunder and the consummation by Buyer of the transactions contemplated hereby and thereby have been duly authorized by all requisite corporate action on the part of Buyer. This Agreement has been duly executed and delivered by Buyer, and (assuming due authorization, execution and delivery by Seller) this Agreement constitutes a legal, valid and binding obligation of Buyer enforceable against Buyer in accordance with its terms. When each Ancillary Document to which Buyer is or will be a party has been duly executed and delivered by Buyer (assuming due authorization, execution and delivery by each other party thereto), such Ancillary Document will constitute a legal and binding obligation of Buyer enforceable against it in accordance with its terms.

 

Section 5.03 No Conflicts; Consents. The execution, delivery and performance by Buyer of this Agreement and the Ancillary Documents to which it is or will be a party, and the consummation of the transactions contemplated hereby and thereby, do not and will not: (a) conflict with or result in a violation or breach of, or default under, any provision of the certificate of incorporation, by-laws or other organizational documents of Buyer; (b) conflict with or result in a violation or breach of any provision of any Law or Governmental Order applicable to Buyer; or (c) except as set forth in Section 5.03 of the Disclosure Schedules, require the consent, notice or other action by any Person under any Contract to which Buyer is a party. No consent, approval, Permit, Governmental Order, declaration or filing with, or notice to, any Governmental Authority is required by or with respect to Buyer in connection with the execution and delivery of this Agreement and the Ancillary Documents to which Buyer is or will be a party and the consummation of the transactions contemplated hereby and thereby except for such consents, approvals, Permits, Governmental Orders, declarations, filings or notices which, in the aggregate, would not have a material adverse effect on the ability of Buyer to consummate the transactions contemplated hereby on a timely basis.

 

38
 

 

Section 5.04 Brokers. No broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the transactions contemplated by this Agreement or any Ancillary Document based upon arrangements made by or on behalf of Buyer.

 

Section 5.05 Legal Proceedings. Except as set forth in Section 5.06 of the Disclosure Schedules, there are no Actions pending or, to Buyer’s knowledge, threatened against or by Buyer or any Affiliate of Buyer that challenge or seek to prevent, enjoin or otherwise delay the transactions contemplated by this Agreement. No event has occurred or circumstances exist that may give rise or serve as a basis for any such Action.

 

ARTICLE VI
Covenants

 

Section 6.01 Conduct of Business Prior to the Closing. From the date hereof until the Closing, except as otherwise provided in this Agreement or consented to in writing by Buyer (which consent shall not be unreasonably withheld, conditioned or delayed), Seller shall (x) conduct the Business in the ordinary course of business consistent with past practice; and (y) use reasonable best efforts to maintain and preserve intact its current Business organization, operations and franchise and to preserve the rights, franchises, goodwill and relationships of its employees, customers, lenders, suppliers, regulators and others having relationships with the Business. Without limiting the foregoing, from the date hereof until the Closing Date, Seller shall:

 

(a) preserve and maintain all Permits required for the conduct of the Business as currently conducted or the ownership and use of the Purchased Assets;

 

(b) pay the debts, Taxes and other obligations of the Business when due;

 

(c) continue to collect Accounts Receivable in a manner consistent with past practice, without discounting such Accounts Receivable;

 

(d) maintain the properties and assets included in the Purchased Assets in the same condition as they were on the date of this Agreement, subject to reasonable wear and tear;

 

(e) continue in full force and effect without modification all Insurance Policies, except as required by applicable Law;

 

(f) defend and protect the properties and assets included in the Purchased Assets from infringement or usurpation;

 

39
 

 

(g) perform all of its obligations under all Assigned Contracts;

 

(h) maintain the Books and Records in accordance with past practice;

 

(i) comply in all material respects with all Laws applicable to the conduct of the Business or the ownership and use of the Purchased Assets; and

 

(j) not take or permit any action that would cause any of the changes, events or conditions described in Section 4.06 to occur.

 

Section 6.02 Access to Information. From the date hereof until the Closing, Seller shall (a) afford Buyer and its Representatives full and free access to and the right to inspect all of the Real Property, properties, assets, premises, Books and Records, Contracts and other documents and data related to the Business; (b) furnish Buyer and its Representatives with such financial, operating and other data and information related to the Business as Buyer or any of its Representatives may reasonably request; and (c) instruct the Representatives of Seller to cooperate with Buyer in its investigation of the Business. Without limiting the foregoing, Seller shall permit Buyer and its Representatives to conduct environmental due diligence of the Real Property, including the collecting and analysis of samples of indoor or outdoor air, potentially hazardous building materials, surface water, groundwater or surface or subsurface land on, at, in, under or from the Real Property. Any investigation pursuant to this Section 6.02 shall be conducted in such manner as not to interfere unreasonably with the conduct of the Business or any other businesses of Seller. No investigation by Buyer or other information received by Buyer shall operate as a waiver or otherwise affect any representation, warranty or agreement given or made by Seller in this Agreement.

 

Section 6.03 No Solicitation of Other Bids.

 

(a) Seller shall not, and shall not authorize or permit any of its Affiliates or any of its or their Representatives to, directly or indirectly, (i) encourage, solicit, initiate, facilitate or continue inquiries regarding an Acquisition Proposal; (ii) enter into discussions or negotiations with, or provide any information to, any Person concerning a possible Acquisition Proposal; or (iii) enter into any agreements or other instruments (whether or not binding) regarding an Acquisition Proposal. Seller shall immediately cease and cause to be terminated, and shall cause its Affiliates and all of its and their Representatives to immediately cease and cause to be terminated, all existing discussions or negotiations with any Persons conducted heretofore with respect to, or that could lead to, an Acquisition Proposal. For purposes hereof, “Acquisition Proposal” means any inquiry, proposal or offer from any Person (other than Buyer or any of its Affiliates) relating to the direct or indirect disposition, whether by sale, merger or otherwise, of all or any portion of the Business or the Purchased Assets.

 

(b) In addition to the other obligations under this Section 6.03, Seller shall promptly (and in any event within three Business Days after receipt thereof by Seller or its Representatives) advise Buyer orally and in writing of any Acquisition Proposal, any request for information with respect to any Acquisition Proposal, or any inquiry with respect to or which could reasonably be expected to result in an Acquisition Proposal, the material terms and conditions of such request, Acquisition Proposal or inquiry, and the identity of the Person making the same.

 

40
 

 

(c) Seller agrees that the rights and remedies for noncompliance with this Section 6.03 shall include having such provision specifically enforced by any court having equity jurisdiction, it being acknowledged and agreed that any such breach or threatened breach shall cause irreparable injury to Buyer and that money damages would not provide an adequate remedy to Buyer.

 

Section 6.04 Notice of Certain Events.

 

(a) From the date hereof until the Closing, Seller shall promptly notify Buyer in writing of:

 

(i) any fact, circumstance, event or action the existence, occurrence or taking of which (A) has had, or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, (B) has resulted in, or could reasonably be expected to result in, any representation or warranty made by Seller hereunder not being true and correct or (C) has resulted in, or could reasonably be expected to result in, the failure of any of the conditions set forth in Section 7.02 to be satisfied;

 

(ii) any notice or other communication from any Person alleging that the consent of such Person is or may be required in connection with the transactions contemplated by this Agreement;

 

(iii) any notice or other communication from any Governmental Authority in connection with the transactions contemplated by this Agreement; and

 

(iv) any Actions commenced or, to Seller’s Knowledge, threatened against, relating to or involving or otherwise affecting the Business, the Purchased Assets or the Assumed Liabilities that, if pending on the date of this Agreement, would have been required to have been disclosed pursuant to Section 4.16 or that relates to the consummation of the transactions contemplated by this Agreement.

 

(b) Buyer’s receipt of information pursuant to this Section 6.04 shall not operate as a waiver or otherwise affect any representation, warranty or agreement given or made by Seller in this Agreement (including Section 8.02 and Section 9.01(b)) and shall not be deemed to amend or supplement the Disclosure Schedules.

 

Section 6.05 Employees and Employee Benefits.

 

(a) Commencing on the Closing Date, Seller shall terminate all employees of the Business who are actively at work on the Closing Date, and, at Buyer’s sole discretion, Buyer may offer employment, on an “at will” basis, to any or all of such employees.

 

41
 

 

(b) Seller shall be solely responsible, and Buyer shall have no obligations whatsoever for, any compensation or other amounts payable to any current or former employee, officer, director, independent contractor or consultant of the Business, including, without limitation, hourly pay, commission, bonus, salary, accrued vacation, fringe, pension or profit sharing benefits or severance pay for any period relating to the service with Seller at any time on or prior to the Closing Date and Seller shall pay all such amounts to all entitled persons on or prior to the Closing Date.

 

(c) Seller shall remain solely responsible for the satisfaction of all claims for medical, dental, life insurance, health accident or disability benefits brought by or in respect of current or former employees, officers, directors, independent contractors or consultants of the Business or the spouses, dependents or beneficiaries thereof, which claims relate to events occurring on or prior to the Closing Date. Seller also shall remain solely responsible for all worker’s compensation claims of any current or former employees, officers, directors, independent contractors or consultants of the Business which relate to events occurring on or prior to the Closing Date. Seller shall pay, or cause to be paid, all such amounts to the appropriate persons as and when due.

 

Section 6.06 Confidentiality. From and after the Closing, Seller shall, and shall cause its Affiliates to, hold, and shall use its reasonable best efforts to cause its or their respective Representatives to hold, in confidence any and all information, whether written or oral, concerning the Business, except to the extent that Seller can show that such information (a) is generally available to and known by the public through no fault of Seller, any of its Affiliates or their respective Representatives; or (b) is lawfully acquired by Seller, any of its Affiliates or their respective Representatives from and after the Closing from sources which are not prohibited from disclosing such information by a legal, contractual or fiduciary obligation. If Seller or any of its Affiliates or their respective Representatives are compelled to disclose any information by judicial or administrative process or by other requirements of Law, Seller shall promptly notify Buyer in writing and shall disclose only that portion of such information which Seller is advised by its counsel in writing is legally required to be disclosed, provided that Seller shall use reasonable best efforts to obtain an appropriate protective order or other reasonable assurance that confidential treatment will be accorded such information.

 

Section 6.07 Governmental Approvals and Consents.

 

(a) Each party hereto shall, as promptly as possible, (i) make, or cause or be made, all filings and submissions) required under any Law applicable to such party or any of its Affiliates; and (ii) use reasonable best efforts to obtain, or cause to be obtained, all consents, authorizations, orders and approvals from all Governmental Authorities that may be or become necessary for its execution and delivery of this Agreement and the performance of its obligations pursuant to this Agreement and the Ancillary Documents. Each party shall cooperate fully with the other party and its Affiliates in promptly seeking to obtain all such consents, authorizations, orders and approvals. The parties hereto shall not willfully take any action that will have the effect of delaying, impairing or impeding the receipt of any required consents, authorizations, orders and approvals.

 

42
 

 

(b) Seller and Buyer shall use reasonable best efforts to give all notices to, and obtain all consents from, all third parties that are described in Section 4.03 and Section 5.03 of the Disclosure Schedules.

 

(c) Without limiting the generality of the parties’ undertakings pursuant to subsections (a) and (b) above, each of the parties hereto shall use all reasonable best efforts to:

 

(i) respond to any inquiries by any Governmental Authority regarding antitrust or other matters with respect to the transactions contemplated by this Agreement or any Ancillary Document;

 

(ii) avoid the imposition of any order or the taking of any action that would restrain, alter or enjoin the transactions contemplated by this Agreement or any Ancillary Document; and

 

(iii) in the event any Governmental Order adversely affecting the ability of the parties to consummate the transactions contemplated by this Agreement or any Ancillary Document has been issued, to have such Governmental Order vacated or lifted.

 

(d) All analyses, appearances, meetings, discussions, presentations, memoranda, briefs, filings, arguments, and proposals made by or on behalf of either party before any Governmental Authority or the staff or regulators of any Governmental Authority, in connection with the transactions contemplated hereunder (but, for the avoidance of doubt, not including any interactions between Seller or Buyer with Governmental Authorities in the ordinary course of business, any disclosure which is not permitted by Law or any disclosure containing confidential information) shall be disclosed to the other party hereunder in advance of any filing, submission or attendance, it being the intent that the parties will consult and cooperate with one another, and consider in good faith the views of one another, in connection with any such analyses, appearances, meetings, discussions, presentations, memoranda, briefs, filings, arguments, and proposals. Each party shall give notice to the other party with respect to any meeting, discussion, appearance or contact with any Governmental Authority or the staff or regulators of any Governmental Authority, with such notice being sufficient to provide the other party with the opportunity to attend and participate in such meeting, discussion, appearance or contact.

 

(e) Notwithstanding the foregoing, nothing in this Section 6.08 shall require, or be construed to require, Buyer or any of its Affiliates to agree to (i) sell, hold, divest, discontinue or limit, before or after the Closing Date, any assets, businesses or interests of Buyer or any of its Affiliates; (ii) any conditions relating to, or changes or restrictions in, the operations of any such assets, businesses or interests which, in either case, could reasonably be expected to result in a Material Adverse Effect or materially and adversely impact the economic or business benefits to Buyer of the transactions contemplated by this Agreement and the Ancillary Documents; or (iii) any material modification or waiver of the terms and conditions of this Agreement.

 

43
 

 

Section 6.08 Books and Records.

 

(a) In order to facilitate the resolution of any claims made against or incurred by Seller prior to the Closing, or for any other reasonable purpose, for a period of seven years after the Closing, Buyer shall:

 

(i) retain the Books and Records (including personnel files) relating to periods prior to the Closing in a manner reasonably consistent with the prior practices of Seller; and

 

(ii) upon reasonable notice, afford the Seller’s Representatives reasonable access (including the right to make, at Seller’s expense, photocopies), during normal business hours, to such Books and Records.

 

(b) In order to facilitate the resolution of any claims made by or against or incurred by Buyer after the Closing, or for any other reasonable purpose, for a period of seven years following the Closing, Seller shall:

 

(i) retain the books and records (including personnel files) of Seller which relate to the Business and its operations for periods prior to the Closing; and

 

(ii) upon reasonable notice, afford the Buyer’s Representatives reasonable access (including the right to make, at Buyer’s expense, photocopies), during normal business hours, to such books and records.

 

(c) Neither Buyer nor Seller shall be obligated to provide the other party with access to any books or records (including personnel files) pursuant to this Section 6.09 where such access would violate any Law.

 

Section 6.09 Closing Conditions From the date hereof until the Closing, each party hereto shall use reasonable best efforts to take such actions as are necessary to expeditiously satisfy the closing conditions set forth in ARTICLE VII hereof.

 

Section 6.10 Public Announcements. Unless otherwise required by applicable Law or stock exchange requirements(based upon the reasonable advice of counsel), no party to this Agreement shall make any public announcements in respect of this Agreement or the transactions contemplated hereby or otherwise communicate with any news media without the prior written consent of the other party (which consent shall not be unreasonably withheld, conditioned or delayed), and the parties shall cooperate as to the timing and contents of any such announcement.

 

Section 6.11 Bulk Sales Laws. The parties hereby waive compliance with the provisions of any bulk sales, bulk transfer or similar Laws of any jurisdiction that may otherwise be applicable with respect to the sale of any or all of the Purchased Assets to Buyer; it being understood that any Liabilities arising out of the failure of Seller to comply with the requirements and provisions of any bulk sales, bulk transfer or similar Laws of any jurisdiction which would not otherwise constitute Assumed Liabilities shall be treated as Excluded Liabilities.

 

44
 

 

Section 6.12 Receivables. From and after the Closing, if Seller or any of its Affiliates receives or collects any funds relating to any Accounts Receivable or any other Purchased Asset, Seller or its Affiliate shall remit such funds to Buyer within five (5) Business Days after its receipt thereof. From and after the Closing, if Buyer or its Affiliate receives or collects any funds relating to any Excluded Asset, Buyer or its Affiliate shall remit any such funds to Seller within five (5) Business Days after its receipt thereof.

 

Section 6.13 Transfer Taxes. All transfer, documentary, sales, use, stamp, registration, value added and other such Taxes and fees (including any penalties and interest) incurred in connection with this Agreement and the Ancillary Documents (including any real property transfer Tax and any other similar Tax) shall be borne and paid by Seller when due. Seller shall, at its own expense, timely file any Tax Return or other document with respect to such Taxes or fees (and Buyer shall cooperate with respect thereto as necessary).

 

Section 6.14 Tax Clearance Certificates. If requested by Buyer, Seller shall notify all of the taxing authorities in the jurisdictions that impose Taxes on Seller or where Seller has a duty to file Tax Returns of the transactions contemplated by this Agreement in the form and manner required by such taxing authorities, if the failure to make such notifications or receive any available tax clearance certificate (a “Tax Clearance Certificate”) could subject the Buyer to any Taxes of Seller. If any taxing authority asserts that Seller is liable for any Tax, Seller shall promptly pay any and all such amounts and shall provide evidence to the Buyer that such liabilities have been paid in full or otherwise satisfied.

 

Section 6.15 Further Assurances. Following the Closing, each of the parties hereto shall, and shall cause their respective Affiliates to, execute and deliver such additional documents, instruments, conveyances and assurances and take such further actions as may be reasonably required to carry out the provisions hereof and give effect to the transactions contemplated by this Agreement and the Ancillary Documents.

 

ARTICLE VII
Conditions to closing

 

Section 7.01 Conditions to Obligations of All Parties. The obligations of each party to consummate the transactions contemplated by this Agreement shall be subject to the fulfillment, at or prior to the Closing, of each of the following conditions:

 

(a) No Governmental Authority shall have enacted, issued, promulgated, enforced or entered any Governmental Order which is in effect and has the effect of making the transactions contemplated by this Agreement illegal, otherwise restraining or prohibiting consummation of such transactions or causing any of the transactions contemplated hereunder to be rescinded following completion thereof.

 

45
 

 

(b) Seller shall have received all consents, authorizations, orders and approvals from the Governmental Authorities referred to in Section 4.03 and Buyer shall have received all consents, authorizations, orders and approvals from the Governmental Authorities referred to in Section 5.03, in each case, in form and substance reasonably satisfactory to Buyer and Seller, and no such consent, authorization, order and approval shall have been revoked.

 

(c) Buyer and Seller shall have entered into an Option Agreement, in the form of Exhibit C hereto, granting Buyer the right to acquire all of the issued and outstanding capital securities of SMCB Solutions Private Limited, in consideration for the issuance of 314,485 shares of Common Stock of Parent.

 

Section 7.02 Conditions to Obligations of Buyer. The obligations of Buyer to consummate the transactions contemplated by this Agreement shall be subject to the fulfillment or Buyer’s waiver, at or prior to the Closing, of each of the following conditions:

 

(a) Other than the representations and warranties of Seller contained in Section 4.01, Section 4.02, Section 4.03 and Section 4.23, the representations and warranties of Seller contained in this Agreement, the Ancillary Documents and any certificate or other writing delivered pursuant hereto shall be true and correct in all respects (without giving effect to any limitation indicated by the words “Material Adverse Effect,” “in all material respects,” “in any material respect,” “material,” or “materially”) on and as of the date hereof and on and as of the Closing Date with the same effect as though made at and as of such date (except those representations and warranties that address matters only as of a specified date, the accuracy of which shall be determined as of that specified date in all respects), except where the failure of such representations and warranties to be so true and correct would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. The representations and warranties of Seller contained in Section 4.01, Section 4.02, Section 4.03 and Section 4.23 shall be true and correct in all respects on and as of the date hereof and on and as of the Closing Date with the same effect as though made at and as of such date (except those representations and warranties that address matters only as of a specified date, the accuracy of which shall be determined as of that specified date in all respects).

 

(b) Seller shall have duly performed and complied in all material respects with all agreements, covenants and conditions required by this Agreement and each of the Ancillary Documents to be performed or complied with by it prior to or on the Closing Date; provided, that, with respect to agreements, covenants and conditions that are qualified by materiality, Seller shall have performed such agreements, covenants and conditions, as so qualified, in all respects.

 

(c) No Action shall have been commenced against Buyer or Seller, which would prevent the Closing. No injunction or restraining order shall have been issued by any Governmental Authority, and be in effect, which restrains or prohibits any transaction contemplated hereby.

 

46
 

 

(d) All approvals, consents and waivers that are listed on Section 4.03 of the Disclosure Schedules shall have been received, and executed counterparts thereof shall have been delivered to Buyer at or prior to the Closing.

 

(e) From the date of this Agreement, there shall not have occurred any Material Adverse Effect, nor shall any event or events have occurred that, individually or in the aggregate, with or without the lapse of time, could reasonably be expected to result in a Material Adverse Effect.

 

(f) Seller shall have delivered to Buyer duly executed counterparts to the Ancillary Documents and such other documents and deliveries set forth in Section 3.02(a).

 

(g) Buyer shall have received all Permits that are necessary for it to conduct the Business as conducted by Seller as of the Closing Date.

 

(h) All Encumbrances relating to the Purchased Assets shall have been released in full, other than Permitted Encumbrances, and Seller shall have delivered to Buyer written evidence, in form satisfactory to Buyer in its sole discretion, of the release of such Encumbrances.

 

(i) Buyer shall have received a certificate, dated the Closing Date and signed by a duly authorized officer of Seller, that each of the conditions set forth in Section 7.02(a) and Section 7.02(b) have been satisfied (the “Seller Closing Certificate”).

 

(j) Buyer shall have received a certificate of the Secretary or an Assistant Secretary (or equivalent officer) of Seller certifying that attached thereto are true and complete copies of all resolutions adopted by the board of directors of Seller authorizing the execution, delivery and performance of this Agreement and the Ancillary Documents to which it is a party and the consummation of the transactions contemplated hereby and thereby, and that all such resolutions are in full force and effect and are all the resolutions adopted in connection with the transactions contemplated hereby and thereby.

 

(k) Buyer shall have received a certificate of the Secretary or an Assistant Secretary (or equivalent officer) of Seller certifying the names and signatures of the officers of Seller authorized to sign this Agreement, the Ancillary Documents and the other documents to be delivered hereunder and thereunder.

 

(l) Buyer shall have received a certificate pursuant to Treasury Regulations Section 1.1445-2(b) (the “FIRPTA Certificate”) that Seller is not a foreign person within the meaning of Section 1445 of the Code duly executed by Seller.

 

(m) Seller shall have delivered to Buyer such other documents or instruments as Buyer reasonably requests and are reasonably necessary to consummate the transactions contemplated by this Agreement.

 

47
 

 

Section 7.03 Conditions to Obligations of Seller. The obligations of Seller to consummate the transactions contemplated by this Agreement shall be subject to the fulfillment or Seller’s waiver, at or prior to the Closing, of each of the following conditions:

 

(a) Other than the representations and warranties of Buyer contained in Section 5.01, Section 5.02, Section 5.03 and Section 5.04, the representations and warranties of Buyer contained in this Agreement, the Ancillary Documents and any certificate or other writing delivered pursuant hereto shall be true and correct in all respects (in the case of any representation or warranty qualified by materiality or Material Adverse Effect) or in all material respects (in the case of any representation or warranty not qualified by materiality or material adverse effect) on and as of the date hereof and on and as of the Closing Date with the same effect as though made at and as of such date (except those representations and warranties that address matters only as of a specified date, the accuracy of which shall be determined as of that specified date in all respects). The representations and warranties of Buyer contained in Section 5.01, Section 5.02, Section 5.03(a) and Section 5.04 shall be true and correct in all respects on and as of the date hereof and on and as of the Closing Date with the same effect as though made at and as of such date.

 

(b) Buyer shall have duly performed and complied in all material respects with all agreements, covenants and conditions required by this Agreement and each of the Ancillary Documents to be performed or complied with by it prior to or on the Closing Date; provided, that, with respect to agreements, covenants and conditions that are qualified by materiality, Buyer shall have performed such agreements, covenants and conditions, as so qualified, in all respects.

 

(c) No injunction or restraining order shall have been issued by any Governmental Authority, and be in effect, which restrains or prohibits any material transaction contemplated hereby.

 

(d) All approvals, consents and waivers that are listed on Section 5.03 of the Disclosure Schedules shall have been received, and executed counterparts thereof shall have been delivered to Seller at or prior to the Closing.

 

(e) Buyer shall have delivered to Seller duly executed counterparts to the Ancillary Documents and such other documents and deliveries set forth in Section 3.02(b).

 

(f) Buyer shall have taken such action to appoint two designees of Seller to the Board of Directors of the Parent, subject to Parent receiving such information about the individuals so designated, as Parent may reasonably request, including customary questionnaires duly completed and executed by such individuals.

 

(g) Buyer shall have consummated a financing transaction for gross proceeds of no less than $1,700,000.

 

48
 

 

(h) Seller shall have received a certificate, dated the Closing Date and signed by a duly authorized officer of Buyer, that each of the conditions set forth in Section 7.03(a) and Section 7.03(b) have been satisfied (the “Buyer Closing Certificate”).

 

(i) Seller shall have received a certificate of the Secretary or an Assistant Secretary (or equivalent officer) of Buyer certifying that attached thereto are true and complete copies of all resolutions adopted by the board of directors of Buyer authorizing the execution, delivery and performance of this Agreement and the Ancillary Documents to which it is a party and the consummation of the transactions contemplated hereby and thereby, and that all such resolutions are in full force and effect and are all the resolutions adopted in connection with the transactions contemplated hereby and thereby.

 

(j) Seller shall have received a certificate of the Secretary or an Assistant Secretary (or equivalent officer) of Buyer certifying the names and signatures of the officers of Buyer authorized to sign this Agreement, the Ancillary Documents and the other documents to be delivered hereunder and thereunder.

 

(k) Buyer shall have delivered to Seller such other documents or instruments as Seller reasonably requests and are reasonably necessary to consummate the transactions contemplated by this Agreement.

 

ARTICLE VIII
Indemnification

 

Section 8.01 Survival. Subject to the limitations and other provisions of this Agreement, the representations and warranties contained herein shall survive the Closing and shall remain in full force and effect until the date that is two years from the Closing Date; provided, that the representations and warranties in (i) Section 4.01, Section 4.02, Section 4.03, Section 4.23, Section 5.01, Section 5.02, Section 5.03 and Section 5.04 shall survive indefinitely, and (ii) Section 4.21 shall survive for the full period of all applicable statutes of limitations (giving effect to any waiver, mitigation or extension thereof) plus 60 days. All covenants and agreements of the parties contained herein shall survive the Closing indefinitely or for the period explicitly specified therein. Notwithstanding the foregoing, any claims asserted in good faith with reasonable specificity (to the extent known at such time) and in writing by notice from the non-breaching party to the breaching party prior to the expiration date of the applicable survival period shall not thereafter be barred by the expiration of the relevant representation or warranty and such claims shall survive until finally resolved.

 

49
 

 

Section 8.02 Indemnification By Seller. Subject to the other terms and conditions of this ARTICLE VIII, from and after Closing, each of the Significant Owners shall jointly, and severally indemnify and defend each of Buyer and its Affiliates and their respective Representatives (collectively, the “Buyer Indemnitees”) against, and shall hold each of them harmless from and against, and shall pay and reimburse each of them for, any and all Losses incurred or sustained by, or imposed upon, the Buyer Indemnitees based upon, arising out of, with respect to or by reason of:

 

(a) any inaccuracy in or breach of any of the representations or warranties of the Seller or the Significant Owners contained in this Agreement, the Ancillary Documents or in any certificate or instrument delivered by or on behalf of Seller pursuant to this Agreement, as of the date such representation or warranty was made or as if such representation or warranty was made on and as of the Closing Date (except for representations and warranties that expressly relate to a specified date, the inaccuracy in or breach of which will be determined with reference to such specified date);

 

(b) any breach or non-fulfillment of any covenant, agreement or obligation to be performed by Seller pursuant to this Agreement, the Ancillary Documents or any certificate or instrument delivered by or on behalf of Seller pursuant to this Agreement;

 

(c) any Excluded Asset or any Excluded Liability; or

 

(d) any Third-Party Claim based upon, resulting from or arising out of the business, operations, properties, assets or obligations of Seller or any of its Affiliates (other than the Purchased Assets or Assumed Liabilities) conducted, existing or arising on or prior to the Closing Date.

 

Section 8.03 Indemnification By Buyer. Subject to the other terms and conditions of this ARTICLE VIII, from and after Closing, Buyer shall indemnify and defend each of Seller and its Affiliates and their respective Representatives (collectively, the “Seller Indemnitees”) against, and shall hold each of them harmless from and against, and shall pay and reimburse each of them for, any and all Losses incurred or sustained by, or imposed upon, the Seller Indemnitees based upon, arising out of, with respect to or by reason of:

 

(a) any inaccuracy in or breach of any of the representations or warranties of Buyer contained in this Agreement or in any certificate or instrument delivered by or on behalf of Buyer pursuant to this Agreement, as of the date such representation or warranty was made or as if such representation or warranty was made on and as of the Closing Date (except for representations and warranties that expressly relate to a specified date, the inaccuracy in or breach of which will be determined with reference to such specified date);

 

(b) any breach or non-fulfillment of any covenant, agreement or obligation to be performed by Buyer pursuant to this Agreement; or

 

(c) any Assumed Liability.

 

Section 8.04 Certain Limitations. The indemnification provided for in Section 8.02 and Section 8.03 shall be subject to the following limitations:

 

(a) Seller shall not be liable to the Buyer Indemnitees for indemnification under Section 8.02(a) until the aggregate amount of all Losses in respect of indemnification under Section 8.02(a) exceeds $20,000 (the “Basket”), in which event Seller shall be required to pay or be liable for all such Losses from the first dollar.

 

50
 

 

(b) Buyer shall not be liable to the Seller Indemnitees for indemnification under Section 8.03(a) until the aggregate amount of all Losses in respect of indemnification under Section 8.03(a) exceeds the Basket, in which event Buyer shall be required to pay or be liable for all such Losses from the first dollar.

 

(c) Notwithstanding the foregoing, the limitations set forth in Section 8.04(a) and Section 8.04(b) shall not apply to Losses based upon, arising out of, with respect to or by reason of any inaccuracy in or breach of any representation or warranty in Section 4.01, Section 4.02, Section 4.03, Section 4.21, Section 4.23, Section 5.01, Section 5.02, Section 5.03 and Section 5.04.

 

(d) For purposes of this ARTICLE VIII (including for purposes of determining the existence of any inaccuracy in, or breach of, any representation or warranty and for calculating the amount of any Loss with respect thereto), any inaccuracy in or breach of any representation or warranty shall be determined without regard to any materiality, Material Adverse Effect or other similar qualification contained in or otherwise applicable to such representation or warranty.

 

Section 8.05 Indemnification Procedures. The party making a claim under this ARTICLE VIII is referred to as the “Indemnified Party”, and the party against whom such claims are asserted under this ARTICLE VIII is referred to as the “Indemnifying Party”.

 

(a) Third-Party Claims. If any Indemnified Party receives notice of the assertion or commencement of any Action made or brought by any Person who is not a party to this Agreement or an Affiliate of a party to this Agreement or a Representative of the foregoing (a “Third-Party Claim”) against such Indemnified Party with respect to which the Indemnifying Party is obligated to provide indemnification under this Agreement, the Indemnified Party shall give the Indemnifying Party reasonably prompt written notice thereof, but in any event not later than thirty (30] calendar days after receipt of such notice of such Third-Party Claim. The failure to give such prompt written notice shall not, however, relieve the Indemnifying Party of its indemnification obligations, except and only to the extent that the Indemnifying Party forfeits rights or defenses by reason of such failure. Such notice by the Indemnified Party shall describe the Third-Party Claim in reasonable detail, shall include copies of all material written evidence thereof and shall indicate the estimated amount, if reasonably practicable, of the Loss that has been or may be sustained by the Indemnified Party. The Indemnifying Party shall have the right to participate in, or by giving written notice to the Indemnified Party, to assume the defense of any Third-Party Claim at the Indemnifying Party’s expense and by the Indemnifying Party’s own counsel, and the Indemnified Party shall cooperate in good faith in such defense; provided, that if the Indemnifying Party is Seller, such Indemnifying Party shall not have the right to defend or direct the defense of any such Third-Party Claim that (x) is asserted directly by or on behalf of a Person that is a supplier or customer of the Business, or (y) seeks an injunction or other equitable relief against the Indemnified Party. In the event that the Indemnifying Party assumes the defense of any Third-Party Claim, subject to Section 8.05(b), it shall have the right to take such action as it deems necessary to avoid, dispute, defend, appeal or make counterclaims pertaining to any such Third-Party Claim in the name and on behalf of the Indemnified Party. The Indemnified Party shall have the right to participate in the defense of any Third-Party Claim with counsel selected by it subject to the Indemnifying Party’s right to control the defense thereof. The fees and disbursements of such counsel shall be at the expense of the Indemnified Party, provided, that if in the reasonable opinion of counsel to the Indemnified Party, (A) there are legal defenses available to an Indemnified Party that are different from or additional to those available to the Indemnifying Party; or (B) there exists a conflict of interest between the Indemnifying Party and the Indemnified Party that cannot be waived, the Indemnifying Party shall be liable for the reasonable fees and expenses of counsel to the Indemnified Party in each jurisdiction for which the Indemnified Party determines counsel is required. If the Indemnifying Party elects not to compromise or defend such Third-Party Claim, fails to promptly notify the Indemnified Party in writing of its election to defend as provided in this Agreement, or fails to diligently prosecute the defense of such Third-Party Claim, the Indemnified Party may, subject to Section 8.05(b), pay, compromise, defend such Third-Party Claim and seek indemnification for any and all Losses based upon, arising from or relating to such Third-Party Claim. Seller and Buyer shall cooperate with each other in all reasonable respects in connection with the defense of any Third-Party Claim, including making available (subject to the provisions of Section 6.06) records relating to such Third-Party Claim and furnishing, without expense (other than reimbursement of actual out-of-pocket expenses) to the defending party, management employees of the non-defending party as may be reasonably necessary for the preparation of the defense of such Third-Party Claim.

 

51
 

 

(b) Settlement of Third-Party Claims. Notwithstanding any other provision of this Agreement, the Indemnifying Party shall not enter into settlement of any Third-Party Claim without the prior written consent of the Indemnified Party, except as provided in this Section 8.05(b). If a firm offer is made to settle a Third-Party Claim without leading to Liability or the creation of a financial or other obligation on the part of the Indemnified Party and provides, in customary form, for the unconditional release of each Indemnified Party from all Liabilities and obligations in connection with such Third-Party Claim and the Indemnifying Party desires to accept and agree to such offer, the Indemnifying Party shall give written notice to that effect to the Indemnified Party. If the Indemnified Party fails to consent to such firm offer within ten days after its receipt of such notice, the Indemnified Party may continue to contest or defend such Third-Party Claim and in such event, the maximum liability of the Indemnifying Party as to such Third-Party Claim shall not exceed the amount of such settlement offer. If the Indemnified Party fails to consent to such firm offer and also fails to assume defense of such Third-Party Claim, the Indemnifying Party may settle the Third-Party Claim upon the terms set forth in such firm offer to settle such Third-Party Claim. If the Indemnified Party has assumed the defense pursuant to Section 8.05(a), it shall not agree to any settlement without the written consent of the Indemnifying Party (which consent shall not be unreasonably withheld, conditioned or delayed).

 

(c) Direct Claims. Any Action by an Indemnified Party on account of a Loss which does not result from a Third-Party Claim (a “Direct Claim”) shall be asserted by the Indemnified Party giving the Indemnifying Party reasonably prompt written notice thereof, but in any event not later than 30days after the Indemnified Party becomes aware of such Direct Claim. The failure to give such prompt written notice shall not, however, relieve the Indemnifying Party of its indemnification obligations, except and only to the extent that the Indemnifying Party forfeits rights or defenses by reason of such failure. Such notice by the Indemnified Party shall describe the Direct Claim in reasonable detail, shall include copies of all material written evidence thereof and shall indicate the estimated amount, if reasonably practicable, of the Loss that has been or may be sustained by the Indemnified Party. The Indemnifying Party shall have thirty (30) days after its receipt of such notice to respond in writing to such Direct Claim. The Indemnified Party shall allow the Indemnifying Party and its professional advisors to investigate the matter or circumstance alleged to give rise to the Direct Claim, and whether and to what extent any amount is payable in respect of the Direct Claim and the Indemnified Party shall assist the Indemnifying Party’s investigation by giving such information and assistance (including access to the Indemnified Party’s premises and personnel and the right to examine and copy any accounts, documents or records) as the Indemnifying Party or any of its professional advisors may reasonably request. If the Indemnifying Party does not so respond within such thirty (30) day period, the Indemnifying Party shall be deemed to have rejected such claim, in which case the Indemnified Party shall be free to pursue such remedies as may be available to the Indemnified Party on the terms and subject to the provisions of this Agreement.

 

Section 8.06 Payments; Right of Set-Off.

 

(a) Once a Loss is agreed to by the Indemnifying Party or finally adjudicated to be payable pursuant to this ARTICLE VIII, the Indemnifying Party shall satisfy its obligations within 15Business Days of such final, non-appealable adjudication by wire transfer of immediately available funds. The parties hereto agree that should an Indemnifying Party not make full payment of any such obligations within such 15Business Day period, any amount payable shall accrue interest from and including the date of agreement of the Indemnifying Party or final, non-appealable adjudication to and including the date such payment has been made at a rate per annum equal to 5%. Such interest shall be calculated daily on the basis of a 365-day year and the actual number of days elapsed.

 

(b) Any Losses payable to a Buyer Indemnitee pursuant to this ARTICLE VIII shall be satisfied by the Significant Owners, jointly and severally. Buyer is hereby authorized at any time and from time to time, to the fullest extent permitted by applicable law, to set-off and apply any amounts or obligations at any time owing to the Significant Owners by the Buyer or Parent against all payments pursuant to Section 8.06(a) of this Agreement.

 

Section 8.07 Tax Treatment of Indemnification Payments. All indemnification payments made under this Agreement shall be treated by the parties as an adjustment to the Purchase Price for Tax purposes, unless otherwise required by Law.

 

52
 

 

Section 8.08 Effect of Investigation. The representations, warranties and covenants of the Indemnifying Party, and the Indemnified Party’s right to indemnification with respect thereto, shall not be affected or deemed waived by reason of any investigation made by or on behalf of the Indemnified Party (including by any of its Representatives) or by reason of the fact that the Indemnified Party or any of its Representatives knew or should have known that any such representation or warranty is, was or might be inaccurate or by reason of the Indemnified Party’s waiver of any condition set forth in Section 7.02 or Section 7.03, as the case may be.

 

Section 8.09 Exclusive Remedies. Section 6.07 and Section 10.11, the parties acknowledge and agree that from and after Closing their sole and exclusive remedy with respect to any and all claims (other than claims arising from fraud or willful misconduct on the part of a party hereto in connection with the transactions contemplated by this Agreement) for any breach of any representation, warranty, covenant, agreement or obligation set forth herein or otherwise relating to the subject matter of this Agreement, shall be pursuant to the indemnification provisions set forth in this ARTICLE VIII. In furtherance of the foregoing, except with respect to Section 6.07 and Section 10.11, each party hereby waives, from and after Closing, to the fullest extent permitted under Law, any and all rights, claims and causes of action for any breach of any representation, warranty, covenant, agreement or obligation set forth herein or otherwise relating to the subject matter of this Agreement it may have against the other parties hereto and their Affiliates and each of their respective Representatives arising under or based upon any Law, except pursuant to the indemnification provisions set forth in this ARTICLE VIII. Nothing in this Section 8.09 shall limit any Person’s right to seek and obtain any equitable relief to which any Person shall be entitled or to seek any remedy on account of any party’s fraud or willful misconduct.

 

ARTICLE IX
Termination

 

Section 9.01 Termination. This Agreement may be terminated at any time prior to the Closing:

 

(a) by the mutual written consent of Seller and Buyer;

 

(b) by Buyer by written notice to Seller if:

 

(i) Buyer is not then in material breach of any provision of this Agreement and there has been a breach, inaccuracy in or failure to perform any representation, warranty, covenant or agreement made by Seller pursuant to this Agreement that would give rise to the failure of any of the conditions specified in ARTICLE VII and such breach, inaccuracy or failure has not been cured by Seller within ten (10)days of Seller’s receipt of written notice of such breach from Buyer; or

 

(ii) any of the conditions set forth in Section 7.01 or Section 7.02 shall not have been, or if it becomes apparent that any of such conditions will not be, fulfilled by June 30, 2024, unless such failure shall be due to the failure of Buyer to perform or comply with any of the covenants, agreements or conditions hereof to be performed or complied with by it prior to the Closing;

 

53
 

 

(c) by Seller by written notice to Buyer if:

 

(i) Seller is not then in material breach of any provision of this Agreement and there has been a breach, inaccuracy in or failure to perform any representation, warranty, covenant or agreement made by Buyer pursuant to this Agreement that would give rise to the failure of any of the conditions specified in ARTICLE VII and such breach, inaccuracy or failure has not been cured by Buyer within ten(10) days of Buyer’s receipt of written notice of such breach from Seller; or

 

(ii) any of the conditions set forth in Section 7.01 or Section 7.03 shall not have been, or if it becomes apparent that any of such conditions will not be, fulfilled by June 30, 2024, unless such failure shall be due to the failure of Seller to perform or comply with any of the covenants, agreements or conditions hereof to be performed or complied with by it prior to the Closing; or

 

(d) by Buyer or Seller in the event that (i) there shall be any Law that makes consummation of the transactions contemplated by this Agreement illegal or otherwise prohibited or (ii) any Governmental Authority shall have issued a Governmental Order restraining or enjoining the transactions contemplated by this Agreement, and such Governmental Order shall have become final and non-appealable.

 

Section 9.02 Effect of Termination. In the event of the termination of this Agreement in accordance with this Article, this Agreement shall forthwith become void and there shall be no liability on the part of any party hereto except:

 

(a) that the obligations set forth in this ARTICLE IX and ARTICLE X hereof shall survive termination; and

 

(b) that nothing herein shall relieve any party hereto from liability for any willful breach of any provision hereof.

 

ARTICLE X
Miscellaneous

 

Section 10.01 Expenses. Except as otherwise expressly provided herein, all costs and expenses, including, without limitation, fees and disbursements of counsel, financial advisors and accountants, incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs and expenses, whether or not the Closing shall have occurred.

 

54
 

 

Section 10.02 Notices. All notices, requests, consents, claims, demands, waivers and other communications hereunder shall be in writing and shall be deemed to have been given (a) when delivered by hand (with written confirmation of receipt); (b) when received by the addressee if sent by a nationally recognized overnight courier (receipt requested); (c) on the date sent by e-mail of a PDF document (with confirmation of transmission) if sent during normal business hours of the recipient, and on the next Business Day if sent after normal business hours of the recipient or (d) on the third day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid. Such communications must be sent to the respective parties at the following addresses (or at such other address for a party as shall be specified in a notice given in accordance with this Section 10.02):

 

If to Seller:

SemiCab, Inc.

2876 Adam Oak Lane

Marietta, GA 30062

E-mail: ajesh.kapoor@semicab.com

Attention: Chief Executive Officer

   
with a copy to:

Kasell Law Firm

1038 Jackson Avenue #4

E-mail: brianlehman97@gmail.com

Attention: Brian Lehman

   
If to Buyer:

The Singing Machine Company, Inc.

6301 NW 5th Way, Sute 2900

Fort Lauderdale, FL 33309

E-mail: gatkinson@singingmachine.com

Attention: Chief Executive Officer

   
with a copy to:

Sichenzia Ross Ference Carmel LLP

1185 Avenue of the Americas, 31st Floor

New York, NY 10036

E-mail: gischenzia@srfc.law

Attention: Gregory Sichenzia, Esq.

 

Section 10.03 Interpretation. For purposes of this Agreement, (a) the words “include,” “includes” and “including” shall be deemed to be followed by the words “without limitation”; (b) the word “or” is not exclusive; and (c) the words “herein,” “hereof,” “hereby,” “hereto” and “hereunder” refer to this Agreement as a whole. Unless the context otherwise requires, references herein: (x) to Articles, Sections, Disclosure Schedules and Exhibits mean the Articles and Sections of, and Disclosure Schedules and Exhibits attached to, this Agreement; (y) to an agreement, instrument or other document means such agreement, instrument or other document as amended, supplemented and modified from time to time to the extent permitted by the provisions thereof and (z) to a statute means such statute as amended from time to time and includes any successor legislation thereto and any regulations promulgated thereunder. This Agreement shall be construed without regard to any presumption or rule requiring construction or interpretation against the party drafting an instrument or causing any instrument to be drafted. The Disclosure Schedules and Exhibits referred to herein shall be construed with, and as an integral part of, this Agreement to the same extent as if they were set forth verbatim herein.

 

55
 

 

Section 10.04 Headings. The headings in this Agreement are for reference only and shall not affect the interpretation of this Agreement.

 

Section 10.05 Severability. If any term or provision of this Agreement is invalid, illegal or unenforceable in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other term or provision of this Agreement or invalidate or render unenforceable such term or provision in any other jurisdiction. Except as provided in Section 6.07(d), upon such determination that any term or other provision is invalid, illegal or unenforceable, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible.

 

Section 10.06 Entire Agreement. This Agreement and the Ancillary Documents constitute the sole and entire agreement of the parties to this Agreement with respect to the subject matter contained herein and therein, and supersede all prior and contemporaneous understandings and agreements, both written and oral, with respect to such subject matter. In the event of any inconsistency between the statements in the body of this Agreement and those in the Ancillary Documents, the Exhibits and Disclosure Schedules (other than an exception expressly set forth as such in the Disclosure Schedules), the statements in the body of this Agreement will control.

 

Section 10.07 Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. Neither party may assign its rights or obligations hereunder without the prior written consent of the other party, which consent shall not be unreasonably withheld, conditioned or delayed; provided, however, that prior to the Closing Date, Buyer may, without the prior written consent of Seller, assign all or any portion of its rights under this Agreement to one or more of its direct or indirect wholly-owned subsidiaries. No assignment shall relieve the assigning party of any of its obligations hereunder.

 

Section 10.08 No Third-Party Beneficiaries. Except as provided in ARTICLE VIII, this Agreement is for the sole benefit of the parties hereto and their respective successors and permitted assigns and nothing herein, express or implied, is intended to or shall confer upon any other Person or entity any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.

 

Section 10.09 Amendment and Modification; Waiver. This Agreement may only be amended, modified or supplemented by an agreement in writing signed by each party hereto. No waiver by any party of any of the provisions hereof shall be effective unless explicitly set forth in writing and signed by the party so waiving. No waiver by any party shall operate or be construed as a waiver in respect of any failure, breach or default not expressly identified by such written waiver, whether of a similar or different character, and whether occurring before or after that waiver. No failure to exercise, or delay in exercising, any right, remedy, power or privilege arising from this Agreement shall operate or be construed as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.

 

56
 

 

Section 10.10 Governing Law; Submission to Jurisdiction; Waiver of Jury Trial.

 

(a) This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York without giving effect to any choice or conflict of law provision or rule (whether of the State of New York or any other jurisdiction).

 

(b) ANY LEGAL SUIT, ACTION OR PROCEEDING ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE ANCILLARY DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY MAY BE INSTITUTED IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK OR THE SUPREME COURT OF THE STATE OF NEW YORK, AND THE APPELLATE COURTS THEREFROM, IN EACH CASE SITTING IN NEW YORK COUNTY, NEW YORK. EACH PARTY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS IN ANY SUCH SUIT, ACTION OR PROCEEDING. SERVICE OF PROCESS, SUMMONS, NOTICE OR OTHER DOCUMENT BY MAIL TO SUCH PARTY’S ADDRESS SET FORTH HEREIN SHALL BE EFFECTIVE SERVICE OF PROCESS FOR ANY SUIT, ACTION OR OTHER PROCEEDING BROUGHT IN ANY SUCH COURT. THE PARTIES IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY OBJECTION TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR ANY PROCEEDING IN SUCH COURTS AND IRREVOCABLY WAIVE AND AGREE NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

 

(c) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT OR THE ANCILLARY DOCUMENTS IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES AND, THEREFORE, EACH SUCH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LEGAL ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE ANCILLARY DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH PARTY TO THIS AGREEMENT CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT SEEK TO ENFORCE THE FOREGOING WAIVER IN THE EVENT OF A LEGAL ACTION, (B) SUCH PARTY HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (D) SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 10.10(c).

 

Section 10.11 Specific Performance. The parties agree that irreparable damage would occur if any provision of this Agreement were not performed in accordance with the terms hereof and that the parties shall be entitled to specific performance of the terms hereof, in addition to any other remedy to which they are entitled at law or in equity.

 

Section 10.12 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall be deemed to be one and the same agreement. A signed copy of this Agreement delivered by facsimile, e-mail or other means of electronic transmission shall be deemed to have the same legal effect as delivery of an original signed copy of this Agreement.

 

[signature page follows]

 

57
 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first written above by their duly authorized officers/representatives.

 

  SEMICAB, INC.
     
  By: /s/ Ajesh Kapoor
  Name: Ajesh Kapoor
  Title: Chief Executive Officer
  The Singing Machine Company, Inc.
     
  SEMICAB HOLDINGS, LLC
   
  By: /s/ Gary Atkinson
  Name: Gary Atkinson
  Title:  
     
  THE SINGING MACHINE COMPANY, INC.
     
  By: /s/ Gary Atkinson
  Name: Gary Atkinson
  Title: Chief Executive Officer
     
  Ajesh Kapoor
  /s/ Ajesh Kapoor
  Vivek Sehgal
  /s/ Vivek Sehgal

 

58
 

 

Exhibit A

 

Employment Agreements

 

 
 

 

Exhibit B

 

Operating Agreement

 

 
 

 

Exhibit C

 

Option Agreement

 

 

 

 

Exhibit 10.1

 

Certain identified information has been excluded from the exhibit because it is both (i) not material and (ii) is the information that the Company customarily keeps private and confidential. Omissions are designated as “****”. 

 

OPERATING AGREEMENT

among

 SEMICAB HOLDINGS, LLC

 

and

 

THE MEMBERS NAMED HEREIN

 

dated as of

June ___, 2024

 

 

 

 

TABLE OF CONTENTS

 

ARTICLE I DEFINITIONS 6
  Section 1.01 Definitions. 6
  Section 1.02 Interpretation. 18
ARTICLE II ORGANIZATION 18
  Section 2.01 Formation. 18
  Section 2.02 Name. 18
  Section 2.03 Principal Office. 18
  Section 2.04 Registered Office; Registered Agent. 18
  Section 2.05 Purpose; Powers. 18
  Section 2.06 Term. 19
  Section 2.07 No State-Law Partnership. 19
ARTICLE III CAPITAL CONTRIBUTIONS; CAPITAL ACCOUNTS 19
  Section 3.01 Initial Capital Contributions. 19
  Section 3.02 Milestone Contributions. 19
  Section 3.03 Additional Capital Contributions. 20
  Section 3.04 Maintenance of Capital Accounts. 22
  Section 3.05 Succession Upon Transfer. 22
  Section 3.06 Negative Capital Accounts. 22
  Section 3.07 No Withdrawals from Capital Accounts. 23
  Section 3.08 Loans From Members. 23
  Section 3.09 Modifications. 23
ARTICLE IV MEMBERS 23
  Section 4.01 Admission of New Members. 23
  Section 4.02 No Personal Liability. 24
  Section 4.03 No Withdrawal. 24
  Section 4.04 No Interest in Company Property. 24
ARTICLE V ALLOCATIONS 24
  Section 5.01 Allocation of Net Income and Net Loss. 24

 

2

 

 

  Section 5.02 Regulatory and Special Allocations. 24
  Section 5.03 Tax Allocations 25
  Section 5.04 Allocations in Respect of Transferred Membership Interests. 26
ARTICLE VI DISTRIBUTIONS 26
  Section 6.01 General. 26
  Section 6.02 Tax Withholding; Withholding Advances. 27
  Section 6.03 Distributions in Kind. 28
ARTICLE VII MANAGEMENT 28
  Section 7.01 Management of the Company. 28
  Section 7.02 Member Decisions. 28
  Section 7.03 Establishment of the Board. 30
  Section 7.04 Board Composition. 30
  Section 7.05 Removal; Resignation; Vacancies. 31
  Section 7.06 Meetings. 32
  Section 7.07 Quorum; Participation; Binding Acts; Proxy. 32
  Section 7.08 Action By Written Consent. 33
  Section 7.09 Compensation; No Employment. 33
  Section 7.10 Chairman of the Board. 34
  Section 7.11 Committees. 34
  Section 7.12 Officers. 34
  Section 7.13 No Personal Liability. 34
  Section 7.14 Budget. 34
  Section 7.15 Other Activities; Business Opportunities. 35
ARTICLE VIII EXCULPATION AND INDEMNIFICATION 35
  Section 8.01 Exculpation of Covered Persons. 35
  Section 8.02 Liabilities and Duties of Covered Persons. 36
  Section 8.03 Indemnification. 37
  Section 8.04 Survival. 39
ARTICLE IX TRANSFER 39

 

3

 

 

  Section 9.01 Restrictions on Transfer. 39
  Section 9.02 Permitted Transfers. 40
  Section 9.03 Right of First Refusal. 41
  Section 9.04 Tag-Along Rights. 43
  Section 9.05 Drag-Along Rights. 46
  Section 9.06 Change of Control of a Member; Put-Call Option; Company FMV. 49
  Section 9.07 Buy-Sell. 50
ARTICLE X COVENANTS AND AGREEMENTS OF THE MEMBERS 53
  Section 10.01 Confidentiality. 53
  Section 10.02 Non-Solicitation. 54
  Section 10.03 Change of Control Notice. 55
  Section 10.04 Related-Party Agreements. 56
ARTICLE XI ACCOUNTING; TAX MATTERS 56
  Section 11.01 Financial Statements. 56
  Section 11.02 Inspection Rights. 56
  Section 11.03 Income Tax Status. 57
  Section 11.04 Tax Matters Representative. 57
  Section 11.05 Tax Returns. 58
  Section 11.06 Company Funds. 59
ARTICLE XII DISSOLUTION AND LIQUIDATION 59
  Section 12.01 Events of Dissolution. 59
  Section 12.02 Effectiveness of Dissolution. 59
  Section 12.03 Liquidation. 59
  Section 12.04 Cancellation of Certificate. 60
  Section 12.05 Survival of Rights, Duties and Obligations. 61
  Section 12.06 Recourse for Claims. 61
ARTICLE XIII MISCELLANEOUS 61
  Section 13.01 Expenses. 61
  Section 13.02 Further Assurances. 61

 

4

 

 

  Section 13.03 Notices. 61
  Section 13.04 Headings. 62
  Section 13.05 Severability. 62
  Section 13.06 Entire Agreement. 62
  Section 13.07 Successors and Assigns. 63
  Section 13.08 No Third-Party Beneficiaries. 63
  Section 13.09 Amendment. 63
  Section 13.10 Waiver. 63
  Section 13.11 Governing Law. 63
  Section 13.12 Submission to Jurisdiction. 63
  Section 13.13 Waiver of Jury Trial. 64
  Section 13.14 Equitable Remedies. 64
  Section 13.15 Attorneys’ Fees. 64
  Section 13.16 Remedies Cumulative. 64
  Section 13.17 Counterparts. 64

 

5

 

 

OPERATING AGREEMENT

 

This Operating Agreement of SemiCab Holdings, LLC, a Nevada limited liability company (the “Company”), is entered into as of June ____, 2024 by and among the Company, The Singing Machine Company, Inc., a Delaware corporation (the “Majority Member”), and SemiCab, Inc., a Delaware corporation (the “Initial Minority Member”).

 

RECITALS

 

WHEREAS, the Company was formed under the laws of the State of Nevada by the filing of an Articles of Formation with the Secretary of State of Nevada (the “Secretary of State”) on May 31, 2024 (the “Articles of Formation”) for the purpose set forth in Section 2.05 of this Agreement; and

 

WHEREAS, in connection with the transactions contemplated by an Asset Purchase Agreement, dated June 11, 2024, by and among the Majority Member, Initial Minority Member, and the Company, the Majority Member and Initial Minority Member have each agreed to contribute, or cause to be contributed, to the Company certain assets and liabilities in exchange for Membership Interests; and

 

WHEREAS, the Members wish to enter into this Agreement setting forth the terms and conditions governing the operation and management of the Company.

 

NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

 

ARTICLE I
Definitions

 

Section 1.01 Definitions. Capitalized terms used herein and not otherwise defined shall have the meanings set forth in this Section 1.01:

 

Act” means Chapter 86 of the Nevada Revised Statutes, as amended from time to time, or any corresponding provision or provisions of any succeeding or successor law of the State of Nevada.

 

Additional Capital Contributions” has the meaning set forth in Section 3.03(a).

 

Adjusted Capital Account Deficit” means, with respect to any Member, the deficit balance, if any, in such Member’s Capital Account as of the end of the relevant Fiscal Year, after giving effect to the following adjustments:

 

(a) crediting to such Capital Account any amount that such Member is obligated to restore or is deemed to be obligated to restore pursuant to Treasury Regulations Sections 1.704-1(b)(2)(ii)(c), 1.704-2(g)(1), and 1.704-2(i); and

 

6

 

 

(b) debiting to such Capital Account the items described in Treasury Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5), and (6).

 

Affiliate” means, with respect to any Person, any other Person who, directly or indirectly (including through one or more intermediaries), controls, is controlled by, or is under common control with, such Person. For purposes of this definition, “control,” when used with respect to any specified Person, shall mean the power, direct or indirect, to direct or cause the direction of the management and policies of such Person, whether through ownership of voting securities or partnership or other ownership interests, by contract, or otherwise; and the terms “controlling” and “controlled” shall have correlative meanings. Notwithstanding the foregoing, the term “Affiliate” does not, when used with respect to a Member or Manager, include the Company and vice versa.

 

Agreement” means this Operating Agreement, as executed and as it may be amended, modified, supplemented, or restated from time to time, as provided herein.

 

Applicable Law” means all applicable provisions of (a) constitutions, treaties, statutes, laws (including the common law), rules, regulations, decrees, ordinances, codes, proclamations, declarations, or orders of any Governmental Authority; (b) any consents or approvals of any Governmental Authority; and (c) any orders, decisions, advisory or interpretative opinions, injunctions, judgments, awards, decrees of, or agreements with, any Governmental Authority.

 

Articles of Formation” has the meaning set forth in the Recitals.

 

Bankruptcy” means, with respect to a Member, the occurrence of any of the following: (a) the filing of an application by such Member for, or a consent to, the appointment of a trustee of such Member’s assets; (b) the filing by such Member of a voluntary petition in bankruptcy or the filing of a pleading in any court of record admitting in writing such Member’s inability to pay its debts as they come due; (c) the making by such Member of a general assignment for the benefit of such Member’s creditors; (d) the filing by such Member of an answer admitting the material allegations of, or such Member’s consenting to, or defaulting in answering a bankruptcy petition filed against such Member in any bankruptcy proceeding; or (e) the expiration of sixty (60) days following the entry of an order, judgment, or decree by any court of competent jurisdiction adjudicating such Member bankrupt or appointing a trustee of such Member’s assets.

 

BBA” means the Bipartisan Budget Act of 2015.

 

Board” has the meaning set forth in Section 7.03.

 

Book Depreciation” means, with respect to any Company asset for each Fiscal Year, the Company’s depreciation, amortization, or other cost recovery deductions determined for federal income tax purposes, except that if the Book Value of an asset differs from its adjusted tax basis at the beginning of such Fiscal Year, Book Depreciation shall be an amount which bears the same ratio to such beginning Book Value as the federal income tax depreciation, amortization, or other cost recovery deduction for such Fiscal Year bears to such beginning adjusted tax basis; provided, that if the adjusted basis for federal income tax purposes of an asset at the beginning of such Fiscal Year is zero and the Book Value of the asset is positive, Book Depreciation shall be determined with reference to such beginning Book Value using any permitted method selected by unanimous consent of the Members in accordance with Treasury Regulations Section 1.704-1(b)(2)(iv)(g)(3).

 

7

 

 

Book Value” means, with respect to any Company asset, the adjusted basis of such asset for federal income tax purposes, except as follows:

 

(a) the initial Book Value of any Company asset contributed by a Member to the Company shall be the gross Fair Market Value of such Company asset as of the date of such contribution;

 

(b) immediately prior to the distribution by the Company of any Company asset to a Member, the Book Value of such asset shall be adjusted to its gross Fair Market Value as of the date of such distribution;

 

(c) the Book Value of all Company assets shall be adjusted to equal their respective gross Fair Market Values, as reasonably determined (except as otherwise provided in Section 12.03(d)) by unanimous consent of the Members, as of the following times:

 

(i) the acquisition of an additional Membership Interest by a new or existing Member in consideration for more than a de minimis Capital Contribution;

 

(ii) the distribution by the Company to a Member of more than a de minimis amount of property (other than cash) as consideration for all or a part of such Member’s Membership Interest; and

 

(iii) the liquidation of the Company within the meaning of Treasury Regulations Section 1.704-1(b)(2)(ii)(g);

 

provided, that adjustments pursuant to clauses (i) and (ii) above need not be made if the Board reasonably determines that such adjustment is not necessary or appropriate to reflect the relative economic interests of the Members and that the absence of such adjustment does not adversely and disproportionately affect any Member;

 

(d) the Book Value of each Company asset shall be increased or decreased, as the case may be, to reflect any adjustments to the adjusted tax basis of such Company asset pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent that such adjustments are taken into account in determining Capital Account balances pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m); provided, that Book Values shall not be adjusted pursuant to this paragraph (d) to the extent that an adjustment pursuant to paragraph (c) above is made in conjunction with a transaction that would otherwise result in an adjustment pursuant to this paragraph (d); and

 

(e) if the Book Value of a Company asset has been determined pursuant to paragraph (a) or adjusted pursuant to paragraphs (c) or (d) above, such Book Value shall thereafter be adjusted to reflect the Book Depreciation taken into account with respect to such Company asset for purposes of computing Net Income and Net Losses.

 

8

 

 

Budget” has the meaning set forth in Section 7.14(a).

 

Business” has the meaning set forth in Section 2.05.

 

Business Day” means a day other than a Saturday, Sunday, or other day on which commercial banks in the City of New York are authorized or required to close.

 

Business Opportunity” has the meaning set forth in Section 7.15(b).

 

Buy-Sell Initiating Member” has the meaning set forth in Section 9.07(a).

 

Buy-Sell Purchasing Member” means each Buy-Sell Responding Member, if any, that has elected to purchase the Membership Interests. If no Buy-Sell Responding Member elects to purchase the Membership Interests, the Buy-Sell Initiating Member shall be the sole Buy-Sell Purchasing Member.

 

Buy-Sell Responding Member” has the meaning set forth in Section 9.07(a).

 

Buy-Sell Response Notice” has the meaning set forth in Section 9.07(b).

 

Call Exercise Price” has the meaning set forth in Section 9.06(a)(ii).

 

Capital Account” has the meaning set forth in Section 3.04.

 

Capital Contribution” means, for any Member, the total amount of cash and cash equivalents and the Book Value of any property contributed to the Company by such Member.

 

Cause” means (i) the Manager’s willful failure, without substantial justification, to perform such Manager’s duties (other than any such failure resulting from incapacity due to physical or mental illness); (ii) the Manager’s willful failure to comply with any valid and legal directive of any officer as may be designated by the Board; (iii) the Manager’s willful engagement in illegal conduct, which is, in each case, materially injurious to the Company or its Affiliates; (iv) the Manager’s conviction of embezzlement, misappropriation, or fraud, whether or not related to such Manager’s position with the Company; (v) the Manager’s conviction of or plea of guilty to a crime that constitutes a felony (or state law equivalent) or a crime that constitutes a misdemeanor involving moral turpitude, if such felony or other crime is work-related, materially impairs such Manager’s ability to perform services for the Company, or results in material reputational or financial harm to the Company or its Affiliates; (vi) the Manager’s material violation of the Company’s written policies or codes of conduct, including written policies related to discrimination, harassment, performance of illegal or unethical activities, and ethical misconduct; (vii) the Manager’s willful unauthorized disclosure of Confidential Information; (viii) the Manager’s material breach of any material obligation under this Agreement or any other written agreement between such Manager and the Company; or (ix) or some other event, the occurrence of which reasonably justifies the immediate expulsion of that Manager.

 

Chairman” has the meaning set forth in Section 7.10.

 

9

 

 

Change of Control” means, with respect to a Member, any transaction or series of related transactions (whether as a result of a tender offer, merger, consolidation, reorganization, acquisition, sale, or transfer of equity securities, proxy, power of attorney, or otherwise) that results in, or that is in connection with: (a) any Person (other than an Affiliate of such Member) or “group” (within the meaning of Section 13(d)(3) of the Exchange Act) of Persons acquiring beneficial ownership, directly or indirectly, of a majority of the then issued and outstanding voting securities or combined voting rights of such Member or any Person, directly or indirectly, controlling such Member; (b) the sale, lease, exchange, conveyance, transfer, or other disposition (whether for cash, shares of stock (or other equity interests), or other consideration) of a majority of the property and assets of such Member or any Person directly or indirectly controlling such Member and its Subsidiaries (if any), on a consolidated basis, to any Person or “group” (within the meaning of Section 13(d)(3) of the Exchange Act) of Persons (including in connection with any liquidation, dissolution, or winding up of the affairs of such Member, or any other distribution made in connection therewith); or (c) occupation of the majority of the seats on the board of directors of the Majority Member by persons who were neither (i) members of the board of directors of the Majority Member on the date of this Agreement (other than those persons contemplated by that certain Asset Purchase Agreement or appointed in accordance with Section 3.02(d)), (ii) nominated, appointed or approved by the board of directors of the Majority Member (either by a specific vote or by approval of a proxy statement issued by the Majority Member on behalf of its board of directors in which such individual is named as a nominee for director) nor (iii) nominated, appointed, or approved (either by a specific vote or by approval of a proxy statement issued by the Majority Member on behalf of its board of directors in which such individual is named as a nominee for director) by directors so nominated.

 

Change of Control Notice” has the meaning set forth in Section 10.03.

 

Changed Member” has the meaning set forth in Section 9.06(a).

 

Code” means the Internal Revenue Code of 1986.

 

Committee” has the meaning set forth in Section 7.11(a).

 

Company” has the meaning set forth in the Preamble.

 

Company FMV” means the price at which a willing buyer having all relevant knowledge would purchase, and a willing seller would sell, the Company, in an arm’s length transaction (including any cash or cash equivalents held by the Company, but net of any Indebtedness), as a going concern as of the date of determination in an orderly sale transaction, based on standard valuation techniques, including discounted cash flows, valuation of comparable companies, and comparable transactions: (a) taking into account the expected amount of distributions to be made to the Members prior to consummation of the sale of the applicable Membership Interest; (b) assuming that any Additional Capital Contributions theretofore required to be funded pursuant to Section 3.03(a) have been funded prior to the time of the valuation; and (c) without regard to (i) any compulsion to sell or the impact of an immediate sale, (ii) the presence or absence of a market, or (iii) any discount or premium from differences in the Members’ proportionate Membership Interests.

 

10

 

 

Company FMV Determination Request” has the meaning set forth in Section 9.06(a).

 

Company Interest Rate” has the meaning set forth in Section 6.02(c).

 

Company Minimum Gain” means “partnership minimum gain” as defined in Treasury Regulations Section 1.704-2(b)(2), substituting the term “Company” for the term “partnership” as the context requires.

 

Confidential Information” has the meaning set forth in Section 10.01(a).

 

Contributing Member” has the meaning set forth in Section 3.03(b).

 

Control,” including the terms “controlled by” and “under common control with,” means the power to direct the affairs of a Person by reason of ownership of voting securities, by contract, or otherwise.

 

Covered Person” has the meaning set forth in Section 8.01(a).

 

Default Amount” has the meaning set forth in Section 3.03(b).

 

Default Loan” has the meaning set forth in Section 3.03(b).

 

Default Rate” has the meaning set forth in Section 3.03(b)(i).

 

Defaulting Member” means a Member that has failed to make an Additional Capital Contribution pursuant to Section 3.03 for so long as it is a Non-Contributing Member.

 

Designated Individual” has the meaning set forth in Section 11.04(a).

 

Drag-Along Member” has the meaning set forth in Section 9.05(a).

 

Drag-Along Notice” has the meaning set forth in Section 9.05(b).

 

Drag-Along Sale” has the meaning set forth in Section 9.05(a).

 

Dragging Member” has the meaning set forth in Section 9.05(a).

 

Dissolution” means, with respect to a Member, the occurrence of any of the following: (a) if such Member is a partnership or limited liability company, the dissolution and commencement of winding up of such partnership or limited liability company; or (b) if such Member is a corporation, the dissolution of the corporation or the revocation of its charter.

 

Electronic Transmission” means any form of communication not directly involving the physical transmission of paper, including the use of, or participation in, one or more electronic networks or databases (including one or more distributed electronic networks or databases), that creates a record that may be retained, retrieved, and reviewed by a recipient thereof and that may be directly reproduced in paper form by such a recipient through an automated process.

 

11

 

 

Encumbrance” means any mortgage, pledge, hypothecation, assignment (as security), deposit arrangement, encumbrance, lien (statutory or other), charge, or other security interest, or any preference, priority, or other security agreement or preferential arrangement of any kind or nature whatsoever having substantially the same economic effect as any of the foregoing (including, any conditional sale or other title retention agreement and any capital lease).

 

Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

Exercise Notice” has the meaning set forth in Section 9.06(a).

 

Fair Market Value” of any asset as of any date means the purchase price that a willing buyer having all relevant knowledge would pay a willing seller for such asset in an arm’s-length transaction. Unless otherwise provided herein, Fair Market Value shall be as determined unanimously by the Members; provided, that if the Members are unable to agree on the fair market value of such asset within a reasonable period of time (not to exceed a period of twenty (20) days), such fair market value shall be determined by a Valuation Firm selected by the Board. The determination of such firm shall be final, conclusive and binding, and the fees and expenses of such valuation firm shall be borne by the Company.

 

Fiscal Year” means the calendar year, unless the Company is required to have a taxable year other than the calendar year, in which case Fiscal Year shall be the period that conforms to its taxable year.

 

****has the meaning set forth in Section 3.02(a)(i).

 

****has the meaning set forth in Section 3.02(a)(ii).

 

GAAP” means United States generally accepted accounting principles.

 

Government Approval” means any authorization, consent, approval, waiver, exception, variance, order, exemption, publication, filing, declaration, concession, grant, franchise, agreement, permission, permit, or license of, from, or with any Government Authority, the giving of notice to or registration with any Government Authority, or any other action in respect of any Government Authority.

 

Governmental Authority” means any federal, state, local, or foreign government or political subdivision thereof, or any agency or instrumentality of such government or political subdivision, or any self-regulated organization or other non-governmental regulatory authority or quasi-governmental authority (to the extent that the rules, regulations, or orders of such organization or authority have the force of law), or any arbitrator, court, or tribunal of competent jurisdiction.

 

Indebtedness” of any Person means (without duplication) all (a) indebtedness of such Person for borrowed money; (b) obligations of such Person which are evidenced by notes, bonds, debentures, or similar instruments; (c) obligations of such Person that have been, or should be, in accordance with GAAP, recorded as capital leases; (d) obligations of such Person that have been, or should be, in accordance with GAAP, recorded as a sale-leaseback transaction or a leveraged lease; (e) obligations of such Person in respect of letters of credit or acceptances issued or created for the account of such Person; (f) liabilities for the deferred purchase price of property or services (other than current liabilities incurred in the ordinary course of business); and (g) direct or indirect guarantees (including “keep well” arrangements, support agreements, and similar agreements) with respect to Indebtedness of any other Person.

 

12

 

 

Independent Third Party” means, with respect to any Member, any Person who is not an Affiliate of such Member.

 

Initial Budget” has the meaning set forth in Section 7.14(a).

 

Initial Capital Contribution” has the meaning set forth in Section 3.01(a).

 

Initial Members” means the Majority Member and the Initial Minority Member.

 

Initial Minority Member” has the meaning set forth in the preamble.

 

Joinder Agreement” means the joinder agreement in form and substance attached hereto as Exhibit A.

 

Liquidator” has the meaning set forth in Section 12.03(a).

 

Losses” has the meaning set forth in Section 8.03(a).

 

Majority Member” has the meaning set forth in the preamble.

 

Majority Member Manager” has the meaning set forth in Section 7.04(a).

 

Manager” has the meaning set forth in Section 7.03.

 

Managers Schedule” has the meaning set forth in Section 7.05(d).

 

Member” means (a) each Initial Member and (b) each Person who is hereafter admitted as a Member in accordance with the terms of this Agreement and the Act, in each case so long as such Person is shown on the Company’s books and records as the owner of a Membership Interest. The Members shall constitute the “members” (as that term is defined in the Act) of the Company.

 

Member Indemnitors” has the meaning set forth in Section 8.03(f).

 

Member Nonrecourse Debt” means “partner nonrecourse debt” as defined in Treasury Regulations Section 1.704-2(b)(4), substituting the term “Company” for the term “partnership” and the term “Member” for the term “partner” as the context requires.

 

Member Nonrecourse Debt Minimum Gain” means an amount, with respect to each Member Nonrecourse Debt, equal to the Company Minimum Gain that would result if the Member Nonrecourse Debt were treated as a Nonrecourse Liability, determined in accordance with Treasury Regulations Section 1.704-2(i)(3).

 

13

 

 

Member Nonrecourse Deduction” means “partner nonrecourse deduction” as defined in Treasury Regulations Section 1.704-2(i), substituting the term “Member” for the term “partner” as the context requires.

 

Membership Interest” means an interest in the Company owned by a Member, including such Member’s right to (a) its distributive share of Net Income, Net Losses, and other items of income, gain, loss, and deduction of the Company; (b) its distributive share of the assets of the Company; (c) vote on, consent to, or otherwise participate in any decision of the Members as provided in this Agreement; and (d) any and all other benefits to which such Member may be entitled as provided in this Agreement or the Act. The Membership Interest of each Member shall be expressed as a Percentage Interest.

 

Milestoneshas the meaning set forth in Section 3.02(a)(ii).

 

Milestone Contributions has the meaning set forth in Section 3.02(a).

 

Milestone Determination Date has the meaning set forth in Section 3.02(b).

 

Milestone Notice has the meaning set forth in Section 3.02(a)(ii).

 

Milestone Objections Notice has the meaning set forth in Section 3.02(b).

 

Net Income” and “Net Loss” mean, for each Fiscal Year or other period specified in this Agreement, an amount equal to the Company’s taxable income or taxable loss, or particular items thereof, determined in accordance with Code Section 703(a) (where, for this purpose, all items of income, gain, loss, or deduction required to be stated separately pursuant to Code Section 703(a)(1) shall be included in taxable income or taxable loss), but with the following adjustments:

 

(a) any income realized by the Company that is exempt from federal income taxation, as described in Code Section 705(a)(1)(B), shall be added to such taxable income or taxable loss, notwithstanding that such income is not includable in gross income;

 

(b) any expenditures of the Company described in Code Section 705(a)(2)(B), including any items treated under Treasury Regulations Section 1.704-1(b)(2)(iv)(I) as items described in Code Section 705(a)(2)(B), shall be subtracted from such taxable income or taxable loss, notwithstanding that such expenditures are not deductible for federal income tax purposes;

 

(c) any gain or loss resulting from any disposition of Company property with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Book Value of the property so disposed, notwithstanding that the adjusted tax basis of such property differs from its Book Value;

 

(d) any items of depreciation, amortization, and other cost recovery deductions with respect to Company property having a Book Value that differs from its adjusted tax basis shall be computed by reference to the property’s Book Value (as adjusted for Book Depreciation) in accordance with Treasury Regulations Section 1.704-1(b)(2)(iv)(g);

 

14

 

 

(e) if the Book Value of any Company property is adjusted as provided in the definition of Book Value, then the amount of such adjustment shall be treated as an item of gain or loss and included in the computation of such taxable income or taxable loss; and

 

(f) to the extent an adjustment to the adjusted tax basis of any Company property pursuant to Code Sections 732(d), 734(b), or 743(b) is required, pursuant to Treasury Regulations Section 1.704 1(b)(2)(iv)(m), to be taken into account in determining Capital Accounts, the amount of such adjustment to the Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis).

 

Non-Changed Member” has the meaning set forth in Section 9.06(a).

 

Non-Contributing Member” has the meaning set forth in Section 3.03(b).

 

Nonrecourse Deductions” has the meaning set forth in Treasury Regulations Section 1.704-2(b).

 

Nonrecourse Liability” has the meaning set forth in Treasury Regulations Section 1.704-2(b)(3).

 

Officers” has the meaning set forth in Section 7.12.

 

Percentage Interest” means, with respect to a Member at any time, the percentage set forth opposite such Member’s name on Schedule A hereto (such percentage being understood to be reflective of the economic interest in the Company represented by such Member’s Membership Interest). The Percentage Interests shall at all times aggregate to one hundred percent (100%).

 

Permitted Transfer” means a Transfer of a Membership Interest carried out pursuant to Section 9.02.

 

Permitted Transferee” means a recipient of a Permitted Transfer.

 

Permitted Transferring Member” has the meaning set forth in Section 9.02.

 

Person” means an individual, corporation, partnership, joint venture, limited liability company, Governmental Authority, unincorporated organization, trust, association, or other entity.

 

Pro Rata Portion” means, with respect to the percentage of Membership Interests to be sold by the Selling Member and each Tag-Along Participating Member, as applicable, the percentage of Membership Interests equal to the product of (a) the aggregate percentage of Membership Interests the Proposed Transferee proposes to purchase and (b) a fraction (i) the numerator of which is equal to the percentage of Membership Interests then held by such Member and (ii) the denominator of which is equal to the percentage of Membership Interests then held by all of the Members participating in the Tag-Along Sale (including, for the avoidance of doubt, the Selling Member and the Tag-Along Participating Members).

 

Put-Call Closing” has the meaning set forth in Section 9.06(b).

 

15

 

 

Put-Call Closing Date” has the meaning set forth in Section 9.06(c).

 

Put-Call Purchase Price” has the meaning set forth in Section 9.06(d).

 

Put-Call Purchasing Member” has the meaning set forth in Section 9.06(b).

 

Put-Call Selling Member” has the meaning set forth in Section 9.06(b).

 

Put Exercise Price” has the meaning set forth in Section 9.06(a)(i).

 

Regulatory Allocations” has the meaning set forth in Section 5.02(e).

 

Related-Party Agreement” means any agreement, arrangement, transaction, or understanding between the Company and any Member or Manager, or any Affiliate of a Member or Manager.

 

Representative” means, with respect to any Person, any and all directors, managers, officers, employees, consultants, financial advisors, counsel, accountants, and other agents of such Person.

 

Restricted Period” has the meaning set forth in Section 10.02(a).

 

Revised Partnership Audit Rules” has the meaning set forth in Section 11.04(a).

 

ROFR Exercise Notice” has the meaning set forth in Section 9.03(c).

 

ROFR Offering Member Notice” has the meaning set forth in Section 9.03(b).

 

ROFR Notice Period” has the meaning set forth in Section 9.03(c).

 

ROFR Offering Interests” has the meaning set forth in Section 9.03(a).

 

ROFR Offering Member” has the meaning set forth in Section 9.03(a).

 

ROFR Purchasing Member” has the meaning set forth in Section 9.03(c).

 

ROFR Rightholders” has the meaning set forth in Section 9.03(a).

 

ROFR Transfer Period” has the meaning set forth in Section 9.03(d).

 

Secretary of State” has the meaning set forth in the Recitals.

 

Securities Act” means the Securities Act of 1933, as amended.

 

Specified Indemnified Persons” has the meaning set forth in Section 8.03(f).

 

Subsidiary” means, with respect to any Person, any other Person of which a majority of the outstanding shares or other equity interests having the power to vote for directors or comparable managers are owned, directly or indirectly, by the first Person.

 

16

 

 

Supermajority Approval” has the meaning set forth in Section 7.02(b).

 

Tag-Along Notice” has the meaning set forth in Section 9.04(c)(i).

 

Tag-Along Period” has the meaning set forth in Section 9.04(c)(i).

 

Tag-Along Sale” has the meaning set forth in Section 9.04(a).

 

Tag-Along Sale Notice” has the meaning set forth in Section 9.04(b).

 

Tag-Along Member” has the meaning set forth in Section 9.04(a).

 

Tag-Along Participating Member” has the meaning set forth in Section 9.04(c)(i).

 

Tag-Along Proposed Transferee” has the meaning set forth in Section 9.04(a).

 

Tag-Along Selling Member” has the meaning set forth in Section 9.04(a).

 

Tax Matters Representative” has the meaning set forth in Section 11.04(a).

 

Taxing Authority” has the meaning set forth in Section 6.02(b).

 

Term” has the meaning set forth in Section 2.06.

 

Tiebreaker Vote” has the meaning set forth in Section 7.07(c).

 

Transfer” means to, directly or indirectly, sell, transfer, assign, pledge, encumber, hypothecate, or similarly dispose of, either voluntarily or involuntarily, by operation of law or otherwise, or to enter into any contract, option, or other arrangement or understanding with respect to the sale, transfer, assignment, Encumbrance, hypothecation, or similar disposition of, any Membership Interest owned by a Person or any interest (including a beneficial interest or any direct or indirect economic or voting interest) in any Membership Interest owned by a Person. “Transfer” when used as a noun shall have a correlative meaning. “Transferor” and “Transferee” mean a Person who makes or receives a Transfer, respectively.

 

Treasury Regulations” means the final or temporary regulations issued by the United States Department of Treasury pursuant to its authority under the Code, and any successor regulations.

 

Valuation Firm” means an independent nationally recognized investment banking or valuation firm with experience in the valuation of businesses similar to the Business.

 

Withholding Advances” has the meaning set forth in Section 6.02(b).

 

17

 

 

Section 1.02 Interpretation. For purposes of this Agreement: (a) the words “include,” “includes,” and “including” shall be deemed to be followed by the words “without limitation”; (b) the word “or” is not exclusive; and (c) the words “herein,” “hereof,” “hereby,” “hereto,” and “hereunder” refer to this Agreement as a whole. The definitions given for any defined terms in this Agreement shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine, and gender-neutral forms. Unless the context otherwise requires, references herein: (i) to Articles, Sections, and Exhibits mean the Articles and Sections of, and Exhibits attached to, this Agreement; (ii) to an agreement, instrument, or other document means such agreement, instrument, or other document as amended, supplemented, or modified from time to time to the extent permitted by the provisions thereof; and (iii) to a statute means such statute as amended from time to time and includes any successor legislation thereto and any regulations promulgated thereunder. This Agreement shall be construed without regard to any presumption or rule requiring construction or interpretation against the party drafting an instrument or causing any instrument to be drafted. The Exhibits and Schedules referred to herein shall be construed with, and as an integral part of, this Agreement to the same extent as if they were set forth verbatim herein.

 

ARTICLE II
Organization

 

Section 2.01 Formation.

 

(a) The Company was formed on May 31, 2024 pursuant to the provisions of the Act, upon the filing of the Articles of Formation with the Secretary of State.

 

(b) This Agreement shall constitute the “operating agreement” (as that term is used in the Act) of the Company. The rights, powers, duties, obligations, and liabilities of the Members shall be determined pursuant to the Act and this Agreement. To the extent that the rights, powers, duties, obligations, and liabilities of any Member are different by reason of any provision of this Agreement than they would be under the Act in the absence of such provision, this Agreement shall, to the extent permitted by the Act, control.

 

Section 2.02 Name. The name of the Company is “SemiCab Holdings, LLC”.

 

Section 2.03 Principal Office. The principal office of the Company is located at 6301 NW 5th Way, Suite 2900, Fort Lauderdale, Florida, 33309, or such other place as may from time to time be determined by the Board. The Board shall give prompt notice of any such change to each of the Members.

 

Section 2.04 Registered Office; Registered Agent. The registered office of the Company shall be the office of the initial registered agent named in the Articles of Formation or such other office (which need not be a place of business of the Company) as the Board may designate from time to time in the manner provided by the Act and Applicable Law. The registered agent for service of process on the Company in the State of Nevada shall be the initial registered agent named in the Articles of Formation or such other Person or Persons as the Board may designate from time to time in the manner provided by the Act and Applicable Law.

 

Section 2.05 Purpose; Powers. The purpose of the Company is to engage in (i) to develop, market, sell, and support the an artificial intelligence and machine learning-based software solution for end use in the logistics and shipping industry (the “Business”) and (ii) any and all lawful activities necessary or incidental thereto. The Company shall have all the powers necessary or convenient to carry out the purpose for which it is formed, including the powers granted by the Act.

 

18

 

 

Section 2.06 Term. The term of the Company (“Term”) commenced on the date the Articles of Formation was filed with the Secretary of State and shall continue in existence perpetually until the Company is dissolved in accordance with the provisions of this Agreement.

 

Section 2.07 No State-Law Partnership. The Members intend that the Company shall not be a partnership or common law joint venture, and that no Member, Manager, or Officer of the Company shall be a partner or joint venturer of any other Members, Manager, or Officer of the Company, for any purposes other than as set forth in Section 11.03.

 

ARTICLE III
Capital Contributions; Capital Accounts

 

Section 3.01 Initial Capital Contributions.

 

(a) In connection with the transactions contemplated by the Asset Purchase Agreement, the Initial Members have made the following initial Capital Contributions (each, an “Initial Capital Contribution”) to the Company in exchange for the Membership Interest in the amount set forth opposite such Initial Member’s name on Schedule A hereto:

 

(i) the contribution by the Majority Member of $1,000,000 within ninety (90) days of the consummation of the Asset Purchase Agreement; and

 

(ii) the contribution by the Initial Minority Member of the Purchased Assets and Assumed Liabilities (each as defined in the Asset Purchase Agreement) contributed by it pursuant to the Asset Purchase Agreement.

 

(b) The Board shall update Schedule A hereto upon the Transfer of any Membership Interest to any new or existing Member in accordance with this Agreement, or as otherwise required by the terms hereof.

 

Section 3.02 Milestone Contributions.

 

(a) In addition to the Initial Capital Contribution made by the Majority Member, such Majority Member shall make certain additional Capital Contributions based on the satisfaction of the following milestones (the Milestone Contributions):

 

(i) ****; and

 

(ii) ****.

 

19

 

 

(b) Within sixty (60) days of a fiscal year end or month end, as appropriate, the Company shall provide the Members and the Board with written notice setting forth the Company’s calculation of the satisfaction of the requirements of a Milestone, together with supporting documentation relating thereto (the “Milestone Notice”). The Majority Member shall have thirty (30) days to review the Milestone Notice and to notify the Company of any objections to the calculations included in the Milestone Notice (“Milestone Objections Notice”). Within ten (10) Business Days of any Milestone Objections Notice, the Board shall obtain an abridged revenue audit for the measurement period and calculations set forth in such Milestone Objections Notice (“Milestone Determination Date”). The determination of such audit shall be final, conclusive and binding, and the fees and expenses of such audit shall be borne by the Company.

 

(c) Unless the Majority Member has delivered an Milestone Objections Notice to the Company, the Majority Member shall be deemed to have accepted and agreed to the Milestone Notice and the calculations therein, and the Majority Member shall then have fifteen (15) days to pay the full funding amount required by Section 3.02(a)(i) or 3.02 (a)(ii) as applicable. The Majority Member shall have fifteen (15) days from a Milestone Determination Date to pay the full funding amount required by Section 3.02(a)(i) or 3.02 (a)(ii) as applicable.

 

(d) In the event that the Company meets the criteria of either Milestone and the Majority Member fails to comply with Section 3.02(c), then the Majority Member shall request that two (2) directors of the Majority Member’s board of directors resign from such board and the Majority Member shall then appoint two (2) directors to fill such vacancies, both of whom shall be nominated by Ajesh Kapoor; provided that the maximum number of directors that Mr. Kapoor shall have the right to appoint under this Section 3.02(d) shall be two.

 

Section 3.03 Additional Capital Contributions.

 

(a) Subject to the approval of the Majority Member in accordance with Section 7.02(a), in addition to their Initial Capital Contributions, from time to time, the Members shall make additional Capital Contributions in cash, in proportion to their respective Percentage Interests, as determined by the Board from time to time to be reasonably necessary to pay any operating, capital, or other expenses relating to the Business and (such additional Capital Contributions, the “Additional Capital Contributions”); provided, that such Additional Capital Contributions shall not exceed the corresponding amounts expressly provided for in the then approved Budget. Upon the Board making such determination to call for Additional Capital Contributions, the Board shall deliver to the Members a written notice of the Company’s need for Additional Capital Contributions, which notice shall specify in reasonable detail (i) the purpose for such Additional Capital Contributions, (ii) the aggregate amount of such Additional Capital Contributions, (iii) each Member’s pro rata share of such aggregate amount of Additional Capital Contributions (based upon such Member’s Percentage Interest), and (iv) the date (which date shall not be less than sixty (60) Business Days following the date that such notice is given) on which such Additional Capital Contributions shall be required to be made by the Members.

 

20

 

 

(b) If any Member shall fail to timely make, or notifies the other Members that it shall not make, all or any portion of any Additional Capital Contribution which such Member is obligated to make under Section 3.03(a), then such Member shall be deemed to be a “Non-Contributing Member.” A Member that is not a Defaulting Member (a “Contributing Member”) shall be entitled, but not obligated, to loan to the Non-Contributing Member, by contributing to the Company on its behalf, all or any part of the amount (the “Default Amount”) that the Non-Contributing Member failed to contribute to the Company (each such loan, a “Default Loan”); provided, that such Contributing Member shall have contributed to the Company its pro rata share of the applicable Additional Capital Contribution. The proceeds of such Default Loan shall be treated as an Additional Capital Contribution by the Non-Contributing Member.

 

(i) Each Default Loan shall bear interest (compounded monthly on the first day of each calendar month) on the unpaid principal amount thereof from time to time remaining from the date advanced until repaid, at the lesser of (i) fifteen percent (15%) per annum and (ii) the maximum rate permitted at law (the “Default Rate”). Default Loans shall be repaid out of any distributions that would otherwise be made to the Non-Contributing Member, as more fully provided in Section 3.03(c); provided, that, so long as a Default Loan is outstanding, the Non-Contributing Member shall have the right to repay it (together with interest then due and owing) in whole or in part. Upon a repayment in full of a Default Loan made to a Non-Contributing Member or any unpaid Default Amount (together with interest accrued thereon as provided in Section 3.03(c)), such Non-Contributing Member shall (so long as it does not have any other outstanding Default Loans and is not otherwise a Non-Contributing Member with respect to any other Additional Capital Contributions) cease to be a Non-Contributing Member.

 

(c) Notwithstanding any other provisions of this Agreement, any amount that otherwise would be paid or distributed to a Non-Contributing Member pursuant to Section 6.01 or ARTICLE XII shall not be paid to such Non-Contributing Member but shall be deemed paid and applied on behalf of such Non-Contributing Member (i) first, to accrued and unpaid interest on all Default Loans (in the order of their original maturity dates) made to such Non-Contributing Member (in the order of their original maturity dates), (ii) second, to the outstanding principal amount of such Default Loans (in the order of their original maturity dates), and (iii) third, to fund any Additional Capital Contribution of such Non-Contributing Member that has not been paid when due or funded pursuant to a Default Loan; provided that any unpaid Default Amount that is not funded pursuant to a Default Loan shall bear interest at the Default Rate (compounded monthly on the first day of each calendar month) from the date such Additional Capital Contribution was due until paid in full to the Company.

 

(d) Notwithstanding the foregoing, if a Non-Contributing Member fails to make its Additional Capital Contribution in accordance with Section 3.03(a), without limitation of any other rights or remedies that may be available, a Contributing Member may institute proceedings against the Non-Contributing Member, either in the Contributing Member’s own name or on behalf of the Company, to obtain payment of the Non-Contributing Member’s portion of the unpaid Additional Capital Contribution, together with interest accrued thereon at the Default Rate from the date that such Additional Capital Contribution was due until the date that such Additional Capital Contribution is made, at the cost and expense of the Non-Contributing Member.

 

21

 

 

(e) Each Member acknowledges and agrees that it would be impracticable or extremely difficult to determine the actual damages incurred by a Contributing Member as a result of a failure of a Member to fund its portion of an Additional Capital Contribution, and that the entitlement of a Contributing Member to exercise the remedies described in this Section 3.03 is fair and reasonable.

 

(f) Except as set forth in Sections 3.02, 3.03 or 3.06, neither Member shall be required to make additional Capital Contributions or make loans to the Company.

 

Section 3.04 Maintenance of Capital Accounts. The Company shall establish and maintain for each Member a separate capital account (a “Capital Account”) on its books and records in accordance with this Section 3.04. Each Capital Account shall be established and maintained in accordance with the following provisions:

 

(a) Each Member’s Capital Account shall be increased by the amount of:

 

(i) such Member’s Capital Contributions, including such Member’s initial Capital Contribution and any Additional Capital Contributions;

 

(ii) any Net Income or other item of income or gain allocated to such Member pursuant to ARTICLE V; and

 

(iii) any liabilities of the Company that are assumed by such Member or secured by any property distributed to such Member.

 

(b) Each Member’s Capital Account shall be decreased by:

 

(i) the cash amount or Book Value of any property distributed to such Member pursuant to ARTICLE VI and Section 12.03(c);

 

(ii) the amount of any Net Loss or other item of loss or deduction allocated to such Member pursuant to ARTICLE V; and

 

(iii) the amount of any liabilities of such Member assumed by the Company or that are secured by any property contributed by such Member to the Company.

 

Section 3.05 Succession Upon Transfer. In the event that any Membership Interest is Transferred in accordance with the terms of this Agreement, the Transferee shall succeed to the Capital Account of the Transferor to the extent it relates to the Transferred Membership Interest and, subject to Section 5.04, shall receive allocations and distributions pursuant to ARTICLES V, VI, and XII in respect of such Membership Interest.

 

Section 3.06 Negative Capital Accounts. In the event that any Member shall have a deficit balance in its Capital Account, such Member shall have no obligation, including during the Term or upon dissolution or liquidation of the Company, to restore such negative balance or make any Capital Contributions to the Company by reason thereof, except as may be required by Applicable Law or in respect of any negative balance resulting from a withdrawal of capital or dissolution in contravention of this Agreement.

 

22

 

 

Section 3.07 No Withdrawals from Capital Accounts. No Member shall be entitled to withdraw any part of its Capital Account or to receive any distribution from the Company, except as otherwise provided in this Agreement. No Member shall receive any interest, salary, management, or service fees, or drawing with respect to its Capital Contributions or its Capital Account, except as otherwise provided in this Agreement. The Capital Accounts are maintained for the sole purpose of allocating items of income, gain, loss, and deduction among the Members and shall have no effect on the amount of any distributions to any Members, in liquidation or otherwise.

 

Section 3.08 Loans From Members. Each of the Members acknowledge that from time-to-time Members, or their Affiliates, may make loans to the Company, the proceeds of which are intended to be used as working capital for the Company and/or to finance in whole or in part the acquisition of additional assets (Member Loans). The terms of such Member Loans shall be approved the Board. Loans by any Member to the Company shall not be considered Capital Contributions and shall not affect the maintenance of such Member’s Capital Account, other than to the extent provided in Section 3.04(a)(iii), if applicable.

 

Section 3.09 Modifications. The foregoing provisions and the other provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Treasury Regulations Section 1.704-1(b) and shall be interpreted and applied in a manner consistent with such Treasury Regulations. If the Board determines that it is prudent to modify the manner in which the Capital Accounts, or any increases or decreases to the Capital Accounts, are computed in order to comply with such Treasury Regulations, the Board may authorize such modifications.

 

ARTICLE IV
Members

 

Section 4.01 Admission of New Members.

 

(a) A new Member may be admitted from time to time in connection with a Transfer of a Membership Interest in accordance with this Agreement, subject to compliance with the provisions of ARTICLE IX, and following compliance with the provisions of Section 4.01(b).

 

(b) In order for any Person not already a Member of the Company to be admitted as a Member, such Person shall have executed and delivered to the Company a written undertaking substantially in the form of the Joinder Agreement. Upon the amendment of Schedule A hereto and the satisfaction of any applicable conditions as may reasonably be deemed necessary by the Board to effect such admission, such Person shall be admitted as a Member and deemed listed as such on the books and records of the Company. The Board shall also adjust the Capital Accounts of the Members as necessary in accordance with Sections 3.04 or 3.05.

 

23

 

 

(c) Any Member that proposes to Transfer its Membership Interest shall (i) be responsible for the payment of expenses incurred by it in connection with such Transfer, whether or not consummated, and (ii) except in connection with a Transfer pursuant to Section 9.05, reimburse the Company and the other Members for all reasonable expenses (including reasonable attorneys’ fees and expenses) incurred by or on behalf of the Company or such other Members in connection with such proposed Transfer, whether or not consummated.

 

Section 4.02 No Personal Liability. Except as otherwise provided in the Act, by Applicable Law, or expressly in this Agreement, no Member will be obligated personally for any debt, obligation, or liability of the Company or another Members, whether arising in contract, tort, or otherwise, solely by reason of being a Member.

 

Section 4.03 No Withdrawal. So long as a Member continues to hold any Membership Interest, such Member shall not have the ability to withdraw or resign as a Member prior to the dissolution and winding up of the Company and any such withdrawal or resignation or attempted withdrawal or resignation by a Member prior to the dissolution or winding up of the Company shall be null and void. As soon as any Person who is a Member ceases to hold any Membership Interests, such Person shall no longer be a Member. A Member shall cease to be a Member as a result of its Bankruptcy.

 

Section 4.04 No Interest in Company Property. No real or personal property of the Company shall be deemed to be owned by any Member individually, but shall be owned by, and title shall be vested solely in, the Company. Without limiting the foregoing, each Member hereby irrevocably waives during the term of the Company any right that such Member may have to maintain any action for partition with respect to the property of the Company.

 

ARTICLE V
Allocations

 

Section 5.01 Allocation of Net Income and Net Loss. For each Fiscal Year (or portion thereof), after giving effect to the special allocations set forth in Section 5.02, Net Income and Net Loss of the Company shall be allocated among the Members pro rata in accordance with their Membership Interests.

 

Section 5.02 Regulatory and Special Allocations. Notwithstanding the provisions of Section 5.01:

 

(a) If there is a net decrease in Company Minimum Gain (determined according to Treasury Regulations Section 1.704-2(d)(1)) during any Fiscal Year, each Member shall be specially allocated Net Income for such Fiscal Year (and, if necessary, subsequent Fiscal Years) in an amount equal to such Member’s share of the net decrease in Company Minimum Gain, determined in accordance with Treasury Regulations Section 1.704-2(g). The items to be so allocated shall be determined in accordance with Treasury Regulations Sections 1.704-2(f)(6) and 1.704-2(j)(2). This Section 5.02 is intended to comply with the “minimum gain chargeback” requirement in Treasury Regulations Section 1.704-2(f) and shall be interpreted consistently therewith.

 

24

 

 

(b) Member Nonrecourse Deductions shall be allocated in the manner required by Treasury Regulations Section 1.704-2(i). Except as otherwise provided in Treasury Regulations Section 1.704-2(i)(4), if there is a net decrease in Member Nonrecourse Debt Minimum Gain during any Fiscal Year, each Member that has a share of such Member Nonrecourse Debt Minimum Gain shall be specially allocated Net Income for such Fiscal Year (and, if necessary, subsequent Fiscal Years) in an amount equal to that Member’s share of the net decrease in Member Nonrecourse Debt Minimum Gain. Items to be allocated pursuant to this paragraph shall be determined in accordance with Treasury Regulations Sections 1.704-2(i)(4) and 1.704-2(j)(2). This Section 5.02(b) is intended to comply with the “minimum gain chargeback” requirements in Treasury Regulations Section 1.704-2(i)(4) and shall be interpreted consistently therewith.

 

(c) Nonrecourse Deductions shall be allocated to the Members in accordance with their Membership Interests.

 

(d) In the event any Member unexpectedly receives any adjustments, allocations, or distributions described in Treasury Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5), or (6), Net Income shall be specially allocated to such Member in an amount and manner sufficient to eliminate the Adjusted Capital Account Deficit created by such adjustments, allocations, or distributions as quickly as possible. This Section 5.02(d) is intended to comply with the qualified income offset requirement in Treasury Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.

 

(e) The allocations set forth in paragraphs (a), (b), (c), and (d) above (the “Regulatory Allocations”) are intended to comply with certain requirements of the Treasury Regulations under Code Section 704. Notwithstanding any other provisions of this ARTICLE V (other than the Regulatory Allocations), the Regulatory Allocations shall be taken into account in allocating Net Income and Net Losses among Members so that, to the extent possible, the net amount of such allocations of Net Income and Net Losses and other items and the Regulatory Allocations to each Member shall be equal to the net amount that would have been allocated to such Member if the Regulatory Allocations had not occurred.

 

Section 5.03 Tax Allocations.

 

(a) Subject to Sections 5.03(b), 5.03(c), and 5.03(d), all income, gains, losses, and deductions of the Company shall be allocated, for federal, state, and local income tax purposes, among the Members in accordance with the allocation of such income, gains, losses, and deductions pursuant to Sections 5.01 and 5.02, except that if any such allocation for tax purposes is not permitted by the Code or other Applicable Law, the Company’s subsequent income, gains, losses, and deductions shall be allocated among the Members for tax purposes, to the extent permitted by the Code and other Applicable Law, so as to reflect as nearly as possible the allocation set forth in Sections 5.01 and 5.02.

 

25

 

 

(b) Items of Company taxable income, gain, loss, and deduction with respect to any property contributed to the capital of the Company shall be allocated among the Members in accordance with Code Section 704(c) and the traditional method with curative allocations of Treasury Regulations Section 1.704-3(c), so as to take account of any variation between the adjusted basis of such property to the Company for federal income tax purposes and its Book Value.

 

(c) If the Book Value of any Company asset is adjusted pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(f) as provided in clause (c) of the definition of Book Value in Section 1.01, subsequent allocations of items of taxable income, gain, loss, and deduction with respect to such asset shall take account of any variation between the adjusted basis of such asset for federal income tax purposes and its Book Value in the same manner as under Code Section 704(c).

 

(d) Allocations of tax credit, tax credit recapture, and any items related thereto shall be allocated to the Members according to their interests in such items as determined by the Board taking into account the principles of Treasury Regulations Section 1.704-1(b)(4)(ii).

 

(e) Allocations pursuant to this Section 5.03 are solely for purposes of federal, state, and local taxes and shall not affect, or in any way be taken into account in computing, any Member’s Capital Account or share of Net Income, Net Losses, distributions, or other items pursuant to any provisions of this Agreement.

 

Section 5.04 Allocations in Respect of Transferred Membership Interests. In the event of a Transfer of a Membership Interest during any Fiscal Year made in compliance with the provisions of ARTICLE IX, Net Income, Net Losses, and other items of income, gain, loss, and deduction of the Company attributable to such Membership Interest for such Fiscal Year shall be determined using the interim closing of the books method.

 

ARTICLE VI
Distributions

 

Section 6.01 General.

 

(a) Any available cash of the Company, after allowance for payment of all Company obligations then due and payable, including debt service, operating expenses, and such other reasonable reserves as the Board, acting in accordance with Section 7.02(b)(iv), may determine, shall be distributed to the Members, on at least an annual basis, pro rata in accordance with their respective Percentage Interests.

 

(b) If a Member has (i) an unpaid Additional Capital Contribution that is overdue and/or (ii) an outstanding Default Loan, any amount that otherwise would be distributed to such Member pursuant to Section 6.01 or ARTICLE XII (up to the amount of such unpaid Additional Capital Contribution or outstanding Default Loan, together with interest accrued thereon) shall not be paid to such Member but shall be deemed distributed to such Member and applied on behalf of it pursuant to Section 3.03(c).

 

26

 

 

(c) Notwithstanding any provision to the contrary contained in this Agreement, the Company shall not make any distribution to the Members if such distribution would violate the Act or other Applicable Law or if such distribution is prohibited by the Company’s then-applicable debt financing agreements.

 

Section 6.02 Tax Withholding; Withholding Advances.

 

(a) Each Member agrees to furnish the Company with any representations and forms as shall be reasonably requested by the Board to assist the Company in determining the extent of, and in fulfilling, any withholding obligations it may have.

 

(b) The Company is hereby authorized at all times to make payments (“Withholding Advances”) with respect to each Member in amounts required to discharge any obligation of the Company (as determined by the Tax Matters Representative based on the advice of legal or tax counsel to the Company) to withhold or make payments to any federal, state, local, or foreign taxing authority (a “Taxing Authority”) with respect to any distribution or allocation by the Company of income or gain to such Member and to withhold the same from distributions to such Member. Any funds withheld from a distribution by reason of this Section 6.02(b) shall nonetheless be deemed distributed to the Member in question for all purposes under this Agreement.

 

(c) Any Withholding Advance made by the Company to a Taxing Authority on behalf of a Member and not simultaneously withheld from a distribution to that Member shall, with interest thereon accruing from the date of payment at a rate equal to the prime rate published in the Wall Street Journal on the date of payment plus two percent (2.0%) per annum (the “Company Interest Rate”):

 

(i) be promptly repaid to the Company by the Member on whose behalf the Withholding Advance was made (which repayment by the Member shall not constitute a Capital Contribution, but shall credit the Member’s Capital Account if the Board shall have initially charged the amount of the Withholding Advance to the Capital Account); or

 

(ii) with the consent of the Board (not including, for purposes of such vote any Managers designated by the Member on whose behalf the Withholding Advance has been made), be repaid by reducing the amount of the next succeeding distribution or distributions to be made to such Member (which reduction amount shall be deemed to have been distributed to the Member, but which shall not further reduce the Member’s Capital Account if the Board shall have initially charged the amount of the Withholding Advance to the Capital Account).

 

Interest shall cease to accrue from the time the Member on whose behalf the Withholding Advance was made repays such Withholding Advance (and all accrued interest) by either method of repayment described above.

 

(d) Each Member hereby agrees to indemnify and hold harmless the Company and the other Members from and against any liability with respect to taxes, interest, or penalties that may be asserted by reason of the Company’s failure to deduct and withhold tax on amounts distributable or allocable to such Member. The Company may pursue and enforce all rights and remedies it may have against each Member under this Section 6.02, including bringing a lawsuit to collect repayment with interest of any Withholding Advances.

 

27

 

 

(e) Neither the Company nor any Manager shall be liable for any excess taxes withheld in respect of any distribution or allocation of income or gain to a Member. In the event of an excess withholding, a Member’s sole recourse shall be to apply for a refund from the appropriate Taxing Authority.

 

(f) The provisions of this Section 6.02 and the obligations of a Member pursuant to Section 6.02 shall survive the termination, dissolution, liquidation, and winding up of the Company and the withdrawal of such Member from the Company or Transfer of such Member’s Units.

 

Section 6.03 Distributions in Kind. No Member has the right to demand or receive property other than cash in payment for its share of any distribution made in accordance with this Agreement. Except as provided in Section 12.03(d), non-cash distributions are not permitted without the unanimous consent of the Board.

 

ARTICLE VII
Management

 

Section 7.01 Management of the Company. The business and affairs of the Company shall be managed by the Board of Managers, subject to Section 7.02.

 

Section 7.02 Member Decisions.

 

(a) Without the approval of the Majority Member (“Majority Member Decision”), the Company and the Board shall not, and shall not enter into any commitment to:

 

(i) make any material change to the nature or model of the Business conducted by the Company or enter into any business other than the Business;

 

(ii) approve of any replacement of a Manager;

 

(iii) approve of the appointment of any Manager as an executive officer of the Company;

 

(iv) approve the Budget for any Fiscal Year or any amendment, modification, or supplement thereto or authorize or incur expenses by an amount in excess of ten percent (10%) the corresponding amounts set forth in the then approved Budget;

 

(v) call on any Member to make any Additional Capital Contribution, other than the Milestone Contributions; and

 

28

 

 

(vi) appoint or remove the Company’s auditors.

 

(b) Supermajority Approval by the Members. Notwithstanding anything herein to the contrary, the Company shall not, and shall not enter into any commitment to (and the Board shall not authorize or permit the Company to), do any of the following without the affirmative vote or approval of at least 85% of the Members (“Supermajority Approval”):

 

(i) except as provided in Section 13.09, amend, modify, or waive the Articles of Formation or this Agreement;

 

(ii) issue, repurchase, or redeem any Membership Interest (or other equity interest or any securities convertible into or exercisable for any Membership Interest or other equity interest), admit additional Members (other than in accordance with the provisions of ARTICLE IX), or accept any additional Capital Contribution other than as provided in Sections 3.02 and 3.03;

 

(iii) authorize any distribution other than as required by Section 6.01(a), Section 12.03(c), or in accordance with Section 12.03(d);

 

(iv) establish any reserve under Section 6.01(a);

 

(v) incur any Indebtedness, pledge or grant Encumbrances on any assets, or guarantee, assume, endorse, or otherwise become responsible for the obligations of any other Person, if the aggregate Indebtedness of the Company following such action would exceed $1,000,000;

 

(vi) make any loan, advance, or other investment in or to any Person, other than (x) to the extent approved or authorized in the Budget, or (y) in the ordinary course of business;

 

(vii) enter into or effect any transaction or series of related transactions involving the purchase, lease, license, exchange, or other acquisition (including by merger, consolidation, acquisition of stock, or acquisition of assets) of any assets and/or equity interests of any Person having a value in excess of $250,000, other than in the ordinary course of business;

 

(viii) enter into or effect any transaction or series of related transactions involving the sale, lease, license, exchange, or other disposition (including by merger, consolidation, sale of stock, or sale of assets) of any assets having a value in excess of $250,000;

 

(ix) approve any merger, consolidation, conversion, or other combination with or into any other Person;

 

(x) establish a Subsidiary or enter into any joint venture or similar business arrangement;

 

29

 

 

(xi) initiate or settle any lawsuit, legal action, dispute, arbitration, mediation, or other similar judicial or administrative proceeding, or agree to the provision of any equitable relief;

 

(xii) initiate or consummate an initial public offering, make a public offering and sale of any membership interests or any other securities of the Company or any successor entity, or otherwise become subject to the periodic reporting requirements of Sections 13 or 15(d) of the Exchange Act;

 

(xiii) appoint or remove the Company’s legal counsel or make any changes in the accounting methods or policies (other than as required by GAAP);

 

(xiv) except as expressly provided in this Agreement, enter into, enter into any commitment to enter into, extend, amend in any material respect, waive, supplement, or terminate (other than pursuant to its terms) any Related-Party Agreement;

 

(xv) subject to a Majority Member Decision set forth in Section 7.02(a)(iii), hire or terminate any Officer, change any compensation policies applicable to any such officer, or enter into any material agreement with respect to any such officer’s employment, severance, consultancy, or other service; or

 

(xvi) establish, dissolve, modify in any material respect the role or authority of, or change the composition of a Committee; or

 

(xvii) initiate a bankruptcy or consent to any involuntary bankruptcy proceeding or, except as provided in ARTICLE XII, dissolve, liquidate, or wind-up the Company.

 

Section 7.03 Establishment of the Board. A board of managers of the Company (the “Board”) is hereby established and shall be comprised of natural Persons (each such Person, a “Manager”) who shall be designated in accordance with the provisions of Section 7.04. The business and affairs of the Company shall be managed, operated, and controlled by or under the direction of the Board, and the Board shall have, and is hereby granted, the full, complete, and exclusive power, authority, and discretion for, on behalf of, and in the name of the Company, to take such actions as it may in its sole discretion deem necessary or advisable to carry out any and all of the objectives and purposes of the Company, subject only to the terms of this Agreement. No Manager, acting in such Manager’s capacity as such, shall have any authority to bind the Company with respect to any matter except pursuant to a resolution authorizing such action that is duly adopted by the Board by the affirmative vote required with respect to such matter pursuant to this Agreement. Except as expressly provided herein or by Applicable Law, no Member, in its capacity as a Member, shall have any power or authority over the business and affairs of the Company or any power or authority to act for or on behalf of, or to bind, the Company.

 

Section 7.04 Board Composition.

 

(a) The Company and the Members shall take such actions as may be required to ensure that the number of Managers constituting the Board is at all times four (4). The Board shall be comprised as follows: one (1) individual designated by the Majority Member (the “Majority Member Manager”), Scott Mahoney, Geordan Pursglove, and Ajesh Kapoon.

 

30

 

 

(b) At all times, the composition of any board of directors, board of managers, or similar governing body of any Subsidiary of the Company shall be the same as that of the Board. Unless otherwise determined by the Board, acting with the unanimous consent of the Board, the quorum, removal rights, meeting procedures, and voting requirements set forth in this ARTICLE VII with respect to the Board shall apply mutatis mutandis to Subsidiaries of the Company and the boards of directors, boards of managers, or similar governing bodies of such Subsidiaries.

 

Section 7.05 Removal; Resignation; Vacancies.

 

(a) A Manager may be removed or replaced at any time from the Board, for Cause only, by an affirmative vote by the Board; provided that only the Majority Member may remove or replace the Majority Member Manager. No Manager may be removed except in accordance with this Section 7.05(a).

 

(b) A Manager may resign at any time from the Board by delivering such Manager’s written resignation to the Board and, in the case of the Majority Member Manager, also to the Majority Member. Any such resignation shall be effective upon receipt thereof unless it is specified to be effective at some other time or upon the occurrence of some other event. The Board’s or Company’s acceptance of a resignation shall not be necessary to make it effective. A resigning Manager may nominate and appoint a replacement Manager to fill the vacancy caused by such Manager’s resignation.

 

(c) Subject to Section 7.05(b), the Board shall nominate and appoint a replacement Manager to any vacancy on the Board resulting from the resignation, removal, death, or disability of a Manager, with such appointment to become effective immediately upon delivery of such written notice of such appointment to the other Members and the Chairman.

 

(d) The Board shall maintain a schedule of all Managers with their respective mailing addresses (the “Managers Schedule”), and shall update the Managers Schedule upon the designation, removal, or replacement of any Manager in accordance with Section 7.04 or this Section 7.05.

 

(e) Each party hereto shall take all necessary action to carry out fully the provisions of Section 7.04 and the foregoing provisions of this Section 7.05 to ensure that the Board and the board of directors or other governing body of any Subsidiary of the Company consists of the Managers that are duly designated in accordance with such sections.

 

31

 

 

Section 7.06 Meetings.

 

(a) Regular meetings of the Board shall be held when and as determined by the Board at such dates and times as the Board may designate. Special meetings of the Board may be called at any time by the Chairman and shall be called by the Chairman at the written request of any Manager who makes such request in good faith. Meetings of the Board may be held either in person at the executive office of the Company or by telephone or video conference or other communication device that permits all Managers participating in the meeting to hear each other.

 

(b) Written notice of a meeting of the Board stating the place, date, and hour of the meeting and the purpose or purposes for which the meeting is called shall be given to each Manager by electronic mail at least seven (7) days before the date of the meeting; provided that, in the case of a special meeting, the Chairman or the Manager requesting the meeting may reduce the advance notice period to not less than three (3) Business Days if the Chairman or such Manager determines, acting reasonably and in good faith, that it is necessary and in the best interests of the Company for the Board to take action within a time period of less than seven (7) days. Notice of any meeting may be waived in writing by any Manager. Presence at a meeting shall constitute waiver of any deficiency of notice under this Section 7.06(b), except when a Manager attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting was not called or convened in accordance with this Agreement and does not otherwise attend the meeting.

 

(c) The Secretary of the Company (or the Chairman, if there is no Secretary) shall circulate to each Manager an agenda for each regular meeting not less than three (3) Business Days in advance of such meeting. In the case of a regular meeting, such agenda shall include a discussion of the financial reports most recently delivered pursuant to Section 11.01 and any other matters that a Manager may reasonably request to be included on such agenda. In the case of a special meeting, the agenda for such meeting shall be established by the Chairman and shall, if applicable, include any matters specified by the Manager requesting such meeting, and shall be provided to each Manager at the time such special meeting is called.

 

(d) The decisions and resolutions of the Board shall be recorded in minutes, which shall state the date, time, and place of the meeting (or the date of any written consent in lieu of a meeting), the Managers present at the meeting, the resolutions put to a vote (or the subject of a written consent) and the results of such voting or written consent. The minutes shall be entered in a minute book kept at the principal office of the Company and a copy of the minutes of each Board meeting shall be provided to each Manager.

 

Section 7.07 Quorum; Participation; Binding Acts; Proxy.

 

(a) Quorum. A majority of the Managers serving on the Board shall constitute a quorum for the transaction of business of the Board. At all times when the Board is conducting business at a meeting of the Board, a quorum of the Board must be present at such meeting. If a quorum shall not be present at any meeting of the Board, then the Managers present at the meeting may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present.

 

32

 

 

(b) Participation. Any Manager may participate in a meeting of the Board or any Committee by telephone or video conference or other communications device that permits all Managers participating in the meeting to hear each other, and participation in a meeting by such means shall constitute presence in person at such meeting. A Manager may vote or be present at a meeting either in person or by proxy, and such proxy may be granted in writing, by means of Electronic Transmission, or as otherwise permitted by Applicable Law.

 

(c) Binding Acts. Each Manager shall have one vote on all matters submitted to the Board or any Committee; provided, however, that, notwithstanding anything herein to the contrary and without limitation of any other rights or remedies that may be available, if and for so long as a Member is a Defaulting Member, any Managers designated by such Member shall cease to have any voting, consent, or approval rights on any matters voted on by the Board and any decision that requires the vote, consent, or approval of Managers designated by such Defaulting Member shall be made without regard to such Managers or any requirement to obtain the vote, consent, or approval of such Managers. Except as otherwise set forth in this Agreement (including Section 7.02(b)), the affirmative vote of 75% of the Managers in attendance at any meeting of the Board or any Committee at which a quorum is present shall be required to authorize any action by the Board or Committee and shall constitute the action of the Board or Committee for all purposes. If the Board is unable to agree on any matter pursuant to this Section 7.07(c) and such disagreement continues for two (2) days despite good faith deliberations, then the Chairman shall be entitled to cast an additional vote to break any tie (“Tiebreaker Vote”).

 

(d) Proxy. Each Manager may authorize another individual (who may or may not be a Manager) to act for such Manager by proxy at any meeting of the Board or any Committee, or to express consent or dissent to a Company action in writing without a meeting. Any such proxy may be granted in writing, by Electronic Transmission, or as otherwise permitted by Applicable Law.

 

Section 7.08 Action By Written Consent. Any permitted or required action of the Board may be taken without a meeting if a consent in writing, setting forth the action to be taken, is signed unanimously by all the Managers. Such consent shall have the same force and effect as a vote at a meeting where a quorum was present and may be stated as such in any document or instrument filed with the Secretary of State.

 

Section 7.09 Compensation; No Employment. Each Manager shall serve without compensation in their capacity as such. Each Manager shall be entitled to reimbursement from the Company for such Manager’s reasonable and necessary out-of-pocket expenses incurred in the performance of their duties as a Manager, pursuant to such policies as may from time to time be established by the Board. This Agreement does not, and is not intended to, confer upon any Manager any rights with respect to employment by the Company or any Subsidiary of the Company, and nothing herein shall be construed to have created any employment agreement or relationship with any Manager.

 

33

 

 

Section 7.10 Chairman of the Board. The Majority Member Manager shall act as Chairman of the Board (“Chairman”) and preside at all meetings of the Board at which such Chairman is present. For the avoidance of doubt, a Manager shall not be considered to be an officer of the Company by virtue of holding the position of Chairman and, except as expressly provided herein, shall not have any rights or powers different from any other Manager other than with respect to any procedural matters to the extent delegated by the Board or as expressly set forth in this Agreement.

 

Section 7.11 Committees.

 

(a) The Board may, by resolution adopted in accordance with Section 7.02(b)(xvi), designate from among the Managers one or more committees of the Board (each, a “Committee”), each of which shall be comprised of one or more Managers. Any such Committee, to the extent provided in the resolution forming such Committee, shall have and may exercise the authority of the Board. The Board, acting in accordance with Section 7.02(b)(xvi), may dissolve any Committee at any time.

 

(b) Except as otherwise provided in the resolution initially establishing such Committee, the presence in person or by proxy of a number of Managers equal to a majority of the total number of Managers comprising the applicable Committee shall constitute a quorum for the conduct of business at any meeting of such Committee. Except as otherwise provided in the resolution adopting such Committee, actions of any Committee shall be made and determined in accordance with Sections 7.07(b), 7.07(c), and 7.07(d). Notice of Committee meetings shall be given to each member of the Committee in the manner provided in Section 7.06(b).

 

Section 7.12 Officers. The Board, subject to Section 7.02(b)(xv), may appoint individuals as officers of the Company (the “Officers”) as it deems necessary or desirable to carry on the business of the Company and the Board may delegate to such Officers such powers and authorities as the Board deems advisable. No Officer need be a Member or Manager. Any individual may hold two or more offices of the Company. Each Officer shall hold office until such Officer’s successor is appointed by the Board or until such Officer’s earlier death, resignation, or removal. Any Officer may resign at any time on written notice to the Board. Any Officer may be removed by the Board, acting in accordance with Section 7.02(b)(xv), with or without cause at any time. A vacancy in any office occurring because of death, resignation, removal, or otherwise, may, but need not, be filled by the Board.

 

Section 7.13 No Personal Liability. Except as otherwise provided in the Act or by Applicable Law, no Manager or Officer will be obligated personally for any debt, obligation, or liability of the Company, whether arising in contract, tort, or otherwise, solely by reason of being a Manager or Officer.

 

Section 7.14 Budget.

 

(a) As soon as practicable after the filing of the Articles of Formation, and subject to approval by the Board, the Company shall adopt the initial business plan and annual budget for the Company through the Fiscal Year ending 2024 (collectively, the “Initial Budget”). The Board shall operate or cause to be operated the Company in accordance with the Initial Budget, as it may thereafter be amended, modified, or replaced in accordance with Section 7.14(b) (as so amended, modified, or replaced and in effect from time to time, the “Budget”).

 

34
 

 

(b) At least sixty (60) days before the beginning of each Fiscal Year (commencing with the Fiscal Year ending December 31), the Chief Executive Officer shall prepare and submit to the Board proposed revisions to the Budget for such upcoming Fiscal Year. The Company shall operate in accordance with the then approved Budget until a revised Budget is approved in accordance with Section 7.02(a)(iv).

 

Section 7.15 Other Activities; Business Opportunities.

 

(a) Except as provided in Section 7.15(b) and Section 10.02, nothing contained in this Agreement shall prevent any Member or Manager or any of their Affiliates from engaging in any other activities or businesses, regardless of whether those activities or businesses are similar to or competitive with the Business; provided that such Member or Manager or Affiliate does not engage in such activity or business as a result of or using Confidential Information. None of the Members or Managers or any of their Affiliates shall be obligated to account to the Company or to the Members for any profits or income earned or derived from such other activities or businesses. None of the Members or Managers or any of their Affiliates shall be obligated to inform the Company or any Member of any business opportunity of any type or description.

 

(b) Notwithstanding Section 7.15(a), if a Member or Manager is offered or discovers a business opportunity of the type and character that is within the scope of the Business (a “Business Opportunity”), such Member or Manager shall, prior to pursuing such Business Opportunity, offer to the Company the right to pursue such Business Opportunity for the benefit of the Company, regardless of whether such Member or Manager believes the Company would be able (financially or otherwise) or willing to pursue such Business Opportunity. If the Board has not determined that the Company will pursue such Business Opportunity within ten (10) days after its presentation to the Company, the presenting Member or Manager shall, subject to the provisions of Section 10.02, be free to pursue such Business Opportunity as such Member or Manager shall determine in its sole discretion; provided that such Member or Manager has delivered written notice of its decision to pursue such Business Opportunity.

 

ARTICLE VIII
Exculpation and Indemnification

 

Section 8.01 Exculpation of Covered Persons.

 

(a) As used herein, the term “Covered Person” shall mean each (i) Member; (ii) officer, director, and employee of each Member; (iii) Manager, Officer, and employee of the Company; (iv) Tax Matters Representative; and (v) Designated Individual.

 

(b) No Covered Person shall be liable to the Company for any loss, damage, or claim incurred by reason of any action taken or omitted to be taken by such Covered Person in their capacity as a Covered Person, whether or not such Person continues to be a Covered Person at the time such loss, damage, or claim is incurred or imposed, so long as such action or omission does not constitute fraud, gross negligence, willful misconduct, or a material breach or knowing violation by such Covered Person of any of such Covered Person’s agreements contained herein or in any other agreements with the Company.

 

35
 

 

(c) A Covered Person shall be fully protected in relying in good faith upon the records of the Company and upon such information, opinions, reports, or statements (including financial statements and information, opinions, reports, or statements as to the value or amount of the assets, liabilities, Net Income, or Net Losses of the Company/, or any facts pertinent to the existence and amount of assets from which distributions might properly be paid) of the following Persons or groups: (i) a Manager; (ii) one or more Officers or employees of the Company; (iii) any attorney, independent accountant, appraiser, or other expert or professional employed or engaged by or on behalf of the Company; or (iv) any other Person selected in good faith by or on behalf of the Company, in each case as to matters that such relying Person reasonably believes to be within such other Person’s professional or expert competence. The preceding sentence shall in no way limit any Person’s right to rely on information to the extent provided in the Act.

 

Section 8.02 Liabilities and Duties of Covered Persons.

 

(a) This Agreement is not intended to, and does not, create or impose any fiduciary duty on any Covered Person. Furthermore, each of the Members and the Company hereby waives any and all fiduciary duties that, absent such waiver, may be implied by Applicable Law, and in doing so, acknowledges and agrees that the duties and obligations of each Covered Person to each other and to the Company are only as expressly set forth in this Agreement. The provisions of this Agreement, to the extent that they restrict the duties and liabilities of a Covered Person otherwise existing at law or in equity, are agreed by the Members to replace such other duties and liabilities of such Covered Person.

 

(b) Whenever in this Agreement a Covered Person is permitted or required to make a decision (including a decision that is in such Covered Person’s “discretion” or under a grant of similar authority or latitude), such Covered Person shall be entitled to consider only such interests and factors as such Covered Person desires, including such Covered Person’s own interests (or, in the case of a Manager, the interests of the Member that designated such Manager or such Member’s Affiliates), and shall have no duty or obligation to give any consideration to any interest of or factors affecting the Company or any other Person. Whenever in this Agreement a Covered Person is permitted or required to make a decision in such Covered Person’s “good faith,” the Covered Person shall act under such express standard and shall not be subject to any other or different standard imposed by this Agreement or any other Applicable Law.

 

36
 

 

Section 8.03 Indemnification.

 

(a) To the fullest extent permitted by the Act, as the same now exists or may hereafter be amended, substituted, or replaced (but, in the case of any such amendment, substitution, or replacement, only to the extent that such amendment, substitution, or replacement permits the Company to provide broader indemnification rights than the Act permitted the Company to provide prior to such amendment, substitution, or replacement), the Company shall indemnify, hold harmless, defend, pay, and reimburse any Covered Person from and against any and all losses, claims, damages, judgments, fines, or liabilities, including reasonable legal fees or other expenses incurred in investigating or defending against such losses, claims, damages, judgments, fines, or liabilities, and any amounts expended in settlement of any claims (other than in connection with any claims brought by (A) a Member or its Affiliate against another Member or its Affiliate or (B) the Company (collectively, “Losses”) to which such Covered Person may become subject by reason of:

 

(i) any act or omission or alleged act or omission performed or omitted to be performed on behalf of the Company in connection with the Business of the Company; or

 

(ii) such Covered Person being or acting in connection with the Business of the Company as a Member, a Manager, or an Officer, or that such Covered Person is or was serving at the request of the Company as a member, manager, partner, director, officer, employee, or agent of any other Person;

 

provided, that (x) such Covered Person acted in good faith and in a manner believed by such Covered Person to be in, or not opposed to, the best interests of the Company and within the scope of such Covered Person’s authority conferred on such Covered Person by the Company and, with respect to any criminal proceeding, had no reasonable cause to believe their conduct was unlawful, and (y) such Covered Person’s conduct did not constitute fraud, gross negligence, willful misconduct, or a material breach or violation by such Covered Person of any of such Covered Person’s agreements contained herein or in any other agreements with the Company, in either case as determined by a final, non-appealable order of a court of competent jurisdiction. In connection with the foregoing, the termination of any action, suit, or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the Covered Person did not act in good faith or, with respect to any criminal proceeding, had reasonable cause to believe that such Covered Person’s conduct was unlawful, or that the Covered Person’s conduct constituted fraud, gross negligence, willful misconduct, or a material breach or violation by such Covered Person of any of such Covered Person’s agreements contained herein or in any other agreements with the Company.

 

(b) To the fullest extent permitted by Applicable Law, expenses (including reasonable legal fees and expenses) incurred by a Covered Person in connection with investigating, preparing to defend, or defending any claim relating to any Losses for which such Covered Person may be entitled to be indemnified pursuant to Section 8.03(a) shall, from time to time, be advanced by the Company prior to a final, non-appealable determination of a court of competent jurisdiction that, in respect of such matter, such Covered Person is not entitled to indemnification for such Losses; provided, however, that the Covered Person shall have provided to the Company (i) written affirmation of such Covered Person’s good faith belief that such Covered Person has met the standard of conduct necessary for indemnification for such Losses under Section 8.03(a); and (ii) an undertaking to repay all such advanced amounts if it shall ultimately be determined that such Covered Person is not entitled to such indemnification.

 

37
 

 

(c) The indemnification provided by this Section 8.03 shall not be deemed exclusive of any other rights to indemnification to which those seeking indemnification may be entitled under any agreement or otherwise. The provisions of this Section 8.03 shall continue to afford protection to each Covered Person regardless of whether such Covered Person remains in the position or capacity pursuant to which such Covered Person became entitled to indemnification under this Section 8.03 and shall inure to the benefit of the executors, administrators, legatees, and distributees of such Covered Person.

 

(d) To the extent available on commercially reasonable terms, the Company may purchase and thereafter maintain, at its expense, insurance to cover Losses covered by the foregoing indemnification provisions and to otherwise cover Losses for any breach or alleged breach by any Covered Person of such Covered Person’s duties in such amount and with such deductibles as the Board may determine; provided, that (i) all Members and Managers shall be treated equally under any such insurance policies and (ii) the failure to obtain such insurance shall not affect the right to indemnification of any Covered Person under the indemnification provisions contained herein, including the right to be reimbursed or advanced expenses or otherwise indemnified for Losses hereunder. Except as provided in Section 8.03(f), if any Covered Person recovers any amounts in respect of any Losses from any insurance coverage, then such Covered Person shall, to the extent that such recovery is duplicative, reimburse the Company for any amounts previously paid to such Covered Person by the Company in respect of such Losses.

 

(e) Notwithstanding anything contained herein to the contrary, any indemnity by the Company relating to the matters covered in this Section 8.03 shall be provided out of and to the extent of Company assets only, and no Member (unless such Member otherwise agrees in writing) shall have personal liability on account thereof solely by reason of being a Member or shall be required to make additional Capital Contributions to help satisfy such indemnity by the Company.

 

(f) The Company hereby acknowledges that certain Managers (the “Specified Indemnified Persons”) may have rights to indemnification and advancement of expenses provided by a Member (directly or by insurance provided by such Person) (collectively, the “Member Indemnitors”). The Company hereby agrees that it is the indemnitor of first resort of the Specified Indemnified Persons with respect to matters for which indemnification is provided to them under this Agreement and that the Company shall be obligated to make all payments due to or for the benefit of a Specified Indemnified Person under this Agreement without regard to any rights that such Specified Indemnified Person may have against a Member Indemnitor. The Company hereby waives and releases any and all equitable and other rights or claims to contribution, subrogation, or indemnification from the Member Indemnitors in respect of any amounts paid to a Specified Indemnified Person hereunder. The Company further agrees that no payment of Losses or expenses by any Member Indemnitor to or for the benefit of a Specified Indemnified Person shall affect the obligations of the Company hereunder, and that the Company shall be obligated to repay the Member Indemnitors for all amounts so paid or reimbursed to the extent that the Company has an obligation to indemnify a Specified Indemnified Person for such Losses or expenses hereunder. The Member Indemnitors are third-party beneficiaries of and shall have the power and authority to enforce the provisions of this Section 8.03(f).

 

38
 

 

(g) If this Section 8.03 or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify and hold harmless each Covered Person pursuant to this Section 8.03 to the fullest extent permitted by any applicable portion of this Section 8.03 that shall not have been invalidated and to the fullest extent permitted by Applicable Law.

 

(h) The provisions of this Section 8.03 shall be a contract between the Company, on the one hand, and each Covered Person who served in such capacity at any time while this Section 8.03 is in effect, on the other hand, pursuant to which the Company and each such Covered Person intend to be legally bound. No amendment, modification, or repeal of this Section 8.03 that adversely affects the rights of a Covered Person to indemnification for Losses incurred or relating to a state of facts existing prior to such amendment, modification, or repeal shall apply in such a way as to eliminate or reduce such Covered Person’s entitlement to indemnification for such Losses without the Covered Person’s prior written consent.

 

Section 8.04 Survival. The provisions of this ARTICLE VIII shall survive the dissolution, liquidation, winding up, and termination of the Company.

 

ARTICLE IX
Transfer

 

Section 9.01 Restrictions on Transfer.

 

(a) Except as otherwise provided in this ARTICLE IX, no Member (or any Permitted Transferee of such Member) shall Transfer all or any portion of its Membership Interest without obtaining the prior written approval of 75% of the Board of Managers. No Transfer of a Membership Interest to a Person not already a Member of the Company shall be deemed completed until the prospective Transferee is admitted as a Member of the Company in accordance with Section 4.01(b).

 

(b) Notwithstanding any other provision of this Agreement (including Section 9.02), each Member agrees that it will not Transfer all or any portion of its Membership Interest, and the Company agrees that it shall not issue any Membership Interests:

 

(i) except as permitted under the Securities Act and other applicable federal or state securities or blue sky laws, and then, with respect to a Transfer of Membership Interests, only upon delivery to the Company of an opinion of counsel in form and substance satisfactory to the Company to the effect that such Transfer may be effected without registration under the Securities Act;

 

(ii) if such Transfer or issuance would cause the Company to be considered a “publicly traded partnership” under Code Section 7704(b);

 

39
 

 

(iii) if such Transfer or issuance would affect the Company’s existence or qualification as a limited liability company under the Act;

 

(iv) if such Transfer or issuance would cause the Company to lose its status as a partnership for federal income tax purposes;

 

(v) if such Transfer or issuance would cause the Company to be required to register as an investment company under the Investment Company Act of 1940; or

 

(vi) if such Transfer or issuance would cause the assets of the Company to be deemed “Plan Assets” as defined under the Employee Retirement Income Security Act of 1974 or its accompanying regulations or result in any “prohibited transaction” thereunder involving the Company.

 

(c) Any Transfer or attempted Transfer of any Membership Interest in contravention of this Agreement shall be null and void, no such Transfer shall be recorded on the Company’s books or otherwise recognized by the Company, and the purported Transferee in any such Transfer shall not be treated as the owner of such Membership Interest for any purposes of this Agreement or have any rights as a Member (and the purported Transferor shall continue to be treated as the owner of such Membership Interest and as a Member).

 

(d) For the avoidance of doubt, any Transfer of a Membership Interest permitted by this Agreement shall be deemed a sale, transfer, assignment, or other disposal of such Membership Interest in its entirety as intended by the parties to such Transfer, and shall not be deemed a sale, transfer, assignment, or other disposal of any less than all of the rights and benefits described in the definition of the term “Membership Interest,” unless otherwise explicitly agreed to by the parties to such Transfer.

 

Section 9.02 Permitted Transfers. The provisions of Section 9.01(a) shall not apply to any Transfer by a Member, that is not a Defaulting Member (a “Permitted Transferring Member”), of all or any portion of its Membership Interest to:

 

(a) an Affiliate of such Permitted Transferring Member that is an entity wholly owned, directly or indirectly, by the ultimate parent of such Permitted Transferring Member; provided that such Permitted Transferring Member shall have guaranteed in a writing delivered to the Company and the other Members the performance by the Transferee of all of such Permitted Transferring Member’s obligations under this Agreement;

 

(b) Initial Minority Member may Transfer its Membership Interests to any of the Managers; and

 

40
 

 

(c) with respect to any Member who is an individual, (i) such Member’s spouse, parent, siblings, descendants (including adoptive relationships and stepchildren) and the spouses of each such natural persons (collectively, “Family Members”), (ii) a trust under which the distribution of Membership Interest may be made only to such Member and/or any Family Member of such Member, (iii) a charitable remainder trust, the income from which will be paid to such Member during his life, (iv) a corporation, partnership or limited liability company, the stockholders, partners or members of which are only such Member and/or Family Members of such Member, or (v) by will or by the laws of intestate succession, to such Member’s executors, administrators, testamentary trustees, legatees or beneficiaries; provided, that any Member who Transfers Membership Interests shall remain bound by the provisions of this Agreement.

 

Section 9.03 Right of First Refusal.

 

(a) Right of First Refusal. At any time, and subject to the terms and conditions specified in this Section 9.03(a), each Member shall have a right of first refusal if any other Member (the “ROFR Offering Member”) receives a bona fide offer from an Independent Third Party for the Transfer of all or any portion of the Membership Interests owned by the ROFR Offering Member (the “ROFR Offering Interests”) that the ROFR Offering Member desires to accept. Each time the ROFR Offering Member receives a bona fide offer from an Independent Third Party for the Transfer any ROFR Offering Interests that the ROFR Offering Member desires to accept, the ROFR Offering Member shall first make an offering of the ROFR Offering Interests to the other Members (the “ROFR Rightholders”) in accordance with the following provisions of this Section 9.03(a) prior to Transferring such ROFR Offering Interests to the Independent Third Party (other than Transfers that (i) are permitted by ARTICLE IX, (ii) are proposed to be made by a Dragging Member or required to be made by a Drag-Along Member pursuant to Section 9.05, or (iii) are made by a Tag-Along Member upon the exercise of its tag-along right pursuant to Section 9.04).

 

(b) ROFR Offer Notice.

 

(i) The ROFR Offering Member shall, within five (5) Business Days of receipt of the offer from the Independent Third Party, give written notice (the “ROFR Offering Member Notice”) to the Company and the ROFR Rightholders stating that it has received a bona fide offer from an Independent Third Party and specifying: (A) the percentage of the ROFR Offering Interests to be sold by the ROFR Offering Member; (B) the name of the Independent Third Party who has offered to purchase such ROFR Offering Interests; (C) the purchase price and the other material terms and conditions of the Transfer, including a description of any non-cash consideration in sufficient detail to permit the valuation thereof; and (D) the proposed date, time, and location of the closing of the Transfer, which shall not be less than sixty (60) Business Days from the date of the ROFR Offering Member Notice.

 

(ii) The ROFR Offering Member Notice shall constitute the ROFR Offering Member’s offer to Transfer the ROFR Offering Interests to the ROFR Rightholders, which offer shall be irrevocable until the end of the ROFR Notice Period.

 

41
 

 

(iii) By delivering the ROFR Offering Member Notice, the ROFR Offering Member represents and warrants to the Company and each ROFR Rightholder that: (A) the ROFR Offering Member has full right, title, and interest in and to the ROFR Offering Interests; (B) the ROFR Offering Member has all the necessary power and authority and has taken all necessary action to sell such ROFR Offering Interests as contemplated by this Section; and (C) the ROFR Offering Interests are free and clear of any and all Liens other than those arising as a result of or under the terms of this Agreement.

 

(c) Exercise of Right of First Refusal.

 

(i) Upon receipt of the ROFR Offering Member Notice, each ROFR Rightholder shall have ten (10) Business Days (the “ROFR Notice Period”) to elect to purchase all (but not less than all) of the ROFR Offering Interests by delivering a written notice (a “ROFR Exercise Notice”) to the ROFR Offering Member and the Company stating that it elects to purchase such ROFR Offering Interests on the terms specified in the ROFR Offering Member Notice. Any ROFR Exercise Notice shall be binding upon delivery and irrevocable by the applicable ROFR Rightholder. If more than one ROFR Rightholder delivers a ROFR Exercise Notice, each such ROFR Rightholder (the “ROFR Purchasing Member”) shall be allocated its Pro Rata Portion of the ROFR Offering Interests, unless otherwise agreed by such ROFR Purchasing Members.

 

(ii) Each ROFR Rightholder that does not deliver a ROFR Exercise Notice during the ROFR Notice Period shall be deemed to have waived all of such ROFR Rightholder’s rights to purchase the ROFR Offering Interests under this Section 9.03, and the ROFR Offering Member shall thereafter subject to Section 9.03(d) and to the rights of any Purchasing Member, be free to Transfer the ROFR Offering Interests to the Independent Third Party specified in the Offer Notice without any further obligation to such ROFR Rightholder pursuant to this Section 9.03.

 

(d) Sale to Independent Third Party. If no ROFR Rightholder delivers a ROFR Exercise Notice in accordance with Section 9.03(c), the ROFR Offering Member may, during the sixty (60) Business Day period immediately following the expiration of the ROFR Notice Period (which sixty (60) Business Day period may be extended for a reasonable time not to exceed ninety (90) Business Days to the extent reasonably necessary to obtain any Government Approvals) (the “ROFR Transfer Period”), and subject to the provisions of Section 9.04 and 9.05, Transfer all of the ROFR Offering Interests to the Independent Third Party on terms and conditions no more favorable to the Independent Third Party than those specified in the ROFR Offering Member Notice. If the ROFR Offering Member does not Transfer the ROFR Offering Interests within the ROFR Transfer Period, the rights provided hereunder shall be deemed to be revived and the ROFR Offering Interests shall not be Transferred to the Independent Third Party unless the ROFR Offering Member sends a new ROFR Offering Member Notice in accordance with, and otherwise complies with, this Section 9.03.

 

42