ASSET PURCHASE AGREEMENT

Exhibit 10.1

 

Dated October 31, 2006

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ASSET PURCHASE AGREEMENT

THIS ASSET PURCHASE AGREEMENT (the “ Agreement ”) is made and entered into as of October 31, 2006, by and among The Brickman Group, Ltd., a Delaware corporation (“ Parent ”), Brickman Bengals, LLC, a Delaware limited liability company (“ Buyer ”), Groundmasters, Inc., an Ohio corporation (“Groundmasters”), Groundmasters, LLC, an Ohio limited liability company, (the “GM Subsidiary,” together with Groundmasters, the “ Company ”) and Michael G. Rorie (the “Principal”).

RECITALS

A. WHEREAS, upon the terms and subject to the conditions set forth herein, the Company hereby sells and transfers, and Buyer hereby buys and assumes, substantially all of the assets and certain liabilities of the Company.

B. WHEREAS, the sole member of Buyer, the board of directors of the Company and the Principal, the sole stockholder of the Company, have authorized and approved the transactions contemplated hereby on the terms set forth in this Agreement.

AGREEMENTS

NOW, THEREFORE, in consideration of the mutual representations, warranties, covenants and agreements contained herein and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, and upon the terms and subject to the conditions hereinafter set forth, the parties hereto, intending to be legally bound hereby, agree as follows:

ARTICLE I

THE TRANSACTION

1.1. Purchase and Sale of Acquired Assets; Assumed Liabilities .

(a) Purchase and Sale of Acquired Assets . The Company hereby sells, conveys, transfers, assigns and delivers to Buyer, and Buyer hereby purchases from the Company, all of the Company’s right, title and interest in and to all the Company’s property and assets, real, personal or mixed, tangible and intangible, of every kind and description, wherever located and whether or not any of such assets have any value for accounting purposes or are carried or reflected on or specifically referred to in either the Company’s books of account or financial statements, excluding only the Excluded Assets (as defined below) (the “ Acquired Assets ”), free and clear of any and all Encumbrances other than Permitted Encumbrances. The Acquired Assets shall include all of the assets of the Company on the Balance Sheet (as defined in Section 3.6 hereof) and all assets acquired by the Company since the Balance Sheet Date (as defined in Section 3.6 hereof), except to the extent disposed of in the ordinary course of business since the Balance Sheet Date or except to the extent specifically identified herein as an Excluded Asset, including all of the following:

(i) all of the Company’s rights under contracts, agreements and purchase and sale orders, including all of the Company’s rights under any of its customer contracts and any contract renewal rights;

(ii) all of the Company’s rights under leases for real or personal property other than the Affiliate Leases;

(iii) all of the Company’s vehicles, trailers, mowers, snow blowers, snow plows, spreaders, hand and power tools, parts and supplies, and all other items of machinery and equipment, wherever located, in each case with any transferable warranty and service rights of the Company with respect to such Acquired Assets;

(iv) all of the Company’s furniture, fixtures, office equipment and supplies, computer hardware and software, stored data, communication equipment, trade fixtures and leasehold improvements (subject to any applicable lease terms), wherever located, in each case with any transferable warranty and service rights of the Company with respect to such Acquired Assets;

(v) all of the Company’s inventory of raw materials, work in process, parts, subassemblies and finished goods, wherever located and whether or not obsolete or carried on the Company’s books of account, in each case with any transferable warranty and service rights of the Company with respect to such Acquired Assets;

(vi) all of the Company’s trade and other notes and accounts receivable, advance payments, deposits, prepaid items and expenses, deferred charges, rights of offset and credits and claims for refund;

(vii) all of the Company’s books, records, manuals, documents, books of account relating primarily to the operation of the Company or to the Acquired Assets or Assumed Liabilities, sales and credit reports, customer lists, literature, brochures, advertising or promotional material and the like;

(viii) all of the Company’s claims, choses in action, causes of action and judgments relating to the Acquired Assets arising after the Closing Date;

(ix) all of the Company’s goodwill and rights in and to the name “Groundmasters, Inc.,” “Groundmasters, LLC” and “Ground Masters” and in any other tradename, trademark, domain names, logo, design, slogan, tag line, fictitious name or service mark, or any variant of any of them, and any applications therefor or registrations thereof, and all any other forms of intellectual property or industrial property rights, including, any patents, copyrights, trade secrets or proprietary manufacturing processes, and any licenses, consents and other agreements relating thereto;

(x) any governmental licenses, permits and approvals issued to the Company to the extent their transfer is permitted by applicable law;

(xi) all insurance policies and benefits, including insurance rights and proceeds, under the Assumed Benefit Contracts relating to periods after the Closing; and

 

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(xii) all insurance proceeds or claims under insurance policies relating to property or equipment not repaired, replaced or restored by the Company prior to the Closing Date.

(b) Excluded Assets . Notwithstanding anything herein to the contrary, the Company shall retain all of its right, title and interest in and to, and there shall be excluded from the sale, conveyance, assignment or transfer to Buyer hereunder, and the Acquired Assets shall not include, solely the following assets and properties (such retained assets and properties being the “ Excluded Assets ”):

(i) all cash and cash equivalents of the Company on hand and/or in banks, including without limitation certificates of deposit, commercial paper, treasury bills, marketable securities, asset or money market accounts and all such similar accounts or investments;

(ii) all refunds of Taxes (as defined in Section 3.18 hereof) to the extent that the Taxes being refunded were an Excluded Liability;

(iii) all Tax Returns (as defined in Section 3.18 hereof) of the Company;

(iv) all rights of the Company under this Agreement and any Ancillary Agreement;

(v) Big Mon Casualty and Indemnity LTD captive insurance policy;

(vi) except as set forth in Section 5.5(c), all pension and profit sharing plans maintained by the Company and the assets thereof, and all other employee benefit plans and arrangements of the Company and the assets thereof;

(vii) all tangible and intangible personal property of the Company disposed of or consumed in the ordinary course of business since the Balance Sheet Date;

(viii) all Contracts that have terminated or expired prior to the Closing Date in the ordinary course of business consistent with the past practices of the Company;

(ix) the Company’s corporate seal, minute books, charter documents, corporate stock record books and such other books and records as pertain to the organization, existence or share capitalization of the Company and duplicate copies of such records as are necessary to enable the Company to file its tax returns and reports as well as any other original records or materials relating to the Company generally and not involving or relating to the Acquired Assets or the operation or operations of the Company;

(x) contracts of insurance, and all insurance proceeds or claims thereunder except as provided in Section 1.1(a)(xi) and (xii);

(xi) all of the Company’s claims, choses in action, causes of action and judgments relating to the Acquired Assets arising prior to the Closing Date to the extent not specifically identified as an Acquired Asset in Section 1.1(a);

 

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(xii) the equity interests in the GM Subsidiary; and

(xiii) the items set forth on Schedule 1.1(b) hereof.

(c) Assumed Liabilities . Buyer hereby assumes and shall fully pay, discharge, satisfy and perform, the following liabilities or obligations of the Company, except in each case to the extent any such liabilities or obligations (a) would have been performed, paid or otherwise discharged on or prior to the Closing Date, but for a breach or default by the Company or (b) are Excluded Liabilities (the “ Assumed Liabilities ”):

(i) all of the liabilities and obligations identified on Schedule 1.1(c) hereof.

(ii) all of the liabilities and obligations of the Company arising under or relating to any contract, lease, or agreement included in the Acquired Assets which by their terms are required to be performed, paid or otherwise discharged following the Closing Date;

(iii) liabilities for personal property Taxes imposed in respect of the Acquired Assets that are first due and payable subsequent to the Closing Date; and

(iv) liabilities and obligations under the Assumed Benefit Contracts to the extent provided under Section 5.5(c).

(d) Excluded Liabilities . Notwithstanding anything contained herein to the contrary, the Excluded Liabilities shall not be assumed by Buyer, but instead shall be retained, performed, paid and discharged by the Company. The term “ Excluded Liabilities ” as used herein means any and all liabilities or obligations of the Company or any of its affiliates of any nature, whether due or to become due, whether accrued, absolute, contingent or otherwise, existing on the Closing Date, or arising out of any transactions entered into or any circumstances or events occurring, or the use, ownership, possession or operation of the Acquired Assets or the conduct of the Company’s business, prior to the Closing Date, excepting only the Assumed Liabilities. Without limiting the foregoing, the Excluded Liabilities shall include the following:

(i) except for personal property Taxes referred to in Section 1.1(c)(iii), any obligation or liability for Taxes incurred by the Company for any period (or portion thereof) prior to the Closing Date, including the Transfer Taxes as provided for in Section 6.2 hereof and any liability of the Company for the Taxes of another person under a contractual indemnity or covenant, as a transferee or otherwise under applicable Tax laws, regulations or administrative rules;

(ii) any claim, obligation or liability in connection with or arising from or relating to any Excluded Asset, including any Taxes associated therewith;

(iii) any Debt as of the Closing Date;

(iv) any obligation or liability of the Company to its shareholders or other equity security holders respecting dividends, distributions in liquidation, redemptions of shares, option payments or otherwise, and any liability of the Company pursuant to the agreements and arrangements set forth on Schedule 3.21 hereof;

 

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(v) any obligation or liability of the Company arising out of this Agreement;

(vi) any obligation or liability arising out of or relating to any business or property formerly owned or operated by the Company, any affiliate or predecessor thereof, but not presently owned and operated by the Company;

(vii) any liabilities or obligations under Benefit Plans, except to the extent such liabilities and obligations otherwise constitute Assumed Liabilities;

(viii) any obligation or liability of the Company or its predecessors arising out of any contract, agreement, permit, franchise or claim that is not transferred to Buyer as part of the Acquired Assets;

(ix) any claim or obligation under any Lease arising prior to or with respect to periods prior to the Closing Date;

(x) outstanding checks of the Company as of the Closing Date;

(xi) any liability, claim or obligation in connection with or arising from or relating to the Employee Leasing Agreement, between J. Ross III Management Company, a Florida corporation d/b/a Employers Choice Plus, and Ground Masters LLC, dated as of December 2, 2003 (the “ Employee Leasing Agreement ”), whether arising before, on or after the Closing.

(xii) any Environmental Liability; and

(xiii) liabilities and obligations in connection with or arising from the Big Mon Casualty and Indemnity LTD captive insurance program.

(e) Nonassignable Assets . Buyer acknowledges that although the Company has not provided to any third party notices of the assignment of the Acquired Assets to Buyer nor obtained from any third party the consents to the transfer of the Acquired Assets listed on Schedule 3.3 and Schedule 3.19 or the permits, licenses, approvals or similar authorizations listed on Schedule 3.15.1 or the Environmental Permits listed on Schedule 3.16.2 (the “Required Notices and Consents”) to transfer to Buyer the contracts, leases, agreements, permits or approvals listed on such schedules, Buyer is closing the transactions contemplated by this Agreement at Closing without the Company providing or obtaining the Required Notices and Consents. Each of the Company and the Principal shall take all reasonable actions and use commercially reasonable efforts to do or cause to be done all such things as shall in the reasonable judgment of Buyer be necessary or proper (a) to assure that the rights and benefits of the Company under such contracts, leases, agreements, permits or approvals shall be preserved for the benefit of Buyer and (b) to facilitate receipt of the consideration to be received by the Company in and under every such contract, agreement, permit or approval, which consideration shall be held for the benefit of, and shall be delivered to, Buyer. In addition, after the Closing,

 

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the Company shall, at the request and under the direction of Buyer, take all reasonable actions and use commercially reasonable efforts to provide or obtain the Required Notices and Consents and any other consents or approvals from governmental authorities or third parties required to be obtained in connection with the execution, delivery and performance by the Principal or the Company of this Agreement. The Company shall not be required to indemnify Buyer under Article VII hereof from any Losses arising from the failure to provide or obtain the Required Notices and Consents prior to Closing.

1.2. Purchase Price Payment .

(a) Purchase Price . The aggregate purchase price for the Acquired Assets (the “ Aggregate Purchase Price ”) shall consist of: (i) Forty-Seven Million Seven Hundred Fifty Thousand Dollars ($47,750,000) in cash (“ Cash Consideration ”) plus (ii) a convertible subordinated note to be issued by the Parent, in the form attached hereto as Exhibit A , in the principal amount of Five Million Dollars ($5,000,000) (the “ Convertible Note ).

(b) Payments . At the Closing, Buyer shall pay Groundmasters the Cash Consideration by wire transfer of immediately available funds to the account that has been designated by Groundmasters and Parent shall issue to Groundmasters the Convertible Note.

ARTICLE II

CLOSING

2.1. Closing Date . The closing of the transactions contemplated hereby (the “ Closing ”) shall take place at the offices of Graydon Head & Ritchey LLP in Cincinnati, Ohio concurrently with the execution of this Agreement (such time and date being referred to herein as the “ Closing Date ”). For financial accounting and tax purposes, to the extent permitted by law, the Closing shall be deemed to have become effective as of the close of business on the Closing Date.

2.2. Closing Deliveries .

(a) Deliveries by Buyer to the Company . At the Closing, Buyer shall deliver or cause to be delivered the following to the Company or Landlord:

(i) the Cash Consideration in accordance with Section 1.2(b) subject to the terms and conditions hereof;

(ii) the Convertible Note, duly executed by Parent and Brickman Group Holdings, Inc.;

(iii) the Real Property Leases, duly executed by Buyer;

(iv) the Agreement and the Ancillary Agreements (as hereinafter defined) to which Buyer or Parent are a party, duly executed by Buyer or Parent, as the case may be; and

 

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(v) such other agreements, certificates and documents as may be reasonably requested by the Company.

(b) Deliveries by the Company . At the Closing, the Company shall deliver or cause to be delivered the following to Buyer:

(i) confidentiality and restrictive covenant agreements duly executed by senior executives of the Company identified on Exhibit B in the form of Exhibit B attached hereto;

(ii) the Real Property Leases, duly executed by Landlord;

(iii) the Assignment of Copyright attached hereto as Exhibit E , duly executed by Groundmasters;

(iv) the Assignment of Trademark attached hereto as Exhibit F , duly executed by Groundmasters;

(v) the Assignment and Assumption Agreements attached as Exhibits G, H and I , duly executed by Groundmasters or the Landlord, as applicable;

(vi) any other title transfer document, as may reasonably be requested by Buyer;

(vii) the Agreement and the Ancillary Agreements to which the Company is a party, duly executed by the Company, as the case may be;

(viii) a legal opinion of the Company’s counsel addressed to Buyer in customary form and reasonably acceptable to Buyer;

(ix) such lien releases or other written evidence reasonably satisfactory to Buyer, evidencing the release of all Encumbrances on the Acquired Assets that are not Permitted Encumbrances;

(x) a certificate prepared in accordance with Treasury regulations section 1.1445-2 and dated as of the Closing Date certifying that Groundmasters is not a foreign person;

(xi) a certificate prepared in accordance with Treasury regulations section 1.1445-2 and dated as of the Closing Date certifying that the GM Subsidiary is a disregarded entity and that its sole member (the Company) is not a foreign person; and

(xii) such other agreements, certificates and documents as may be reasonably requested by Buyer.

2.3. Deliveries by the Principal . At the Closing, the Principal shall deliver or cause to be delivered to Buyer the Agreement and the Ancillary Agreements to which the Principal or any affiliate controlled by the Principal is a party, duly executed by the Principal or such affiliate (including the Real Property Leases, the Lebanon Documents and the Assignment and Assumption Agreement attached as Exhibit H ).

 

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ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE

COMPANY

The Company represents and warrants to Buyer as follows:

3.1. Organization . Groundmasters is a corporation, the GM Subsidiary is a limited liability company and each are duly organized, validly existing, and in good standing under the laws of the State of Ohio. The Company has all requisite corporate or limited liability company power and authority to carry on its business as it now is being conducted and to execute, deliver and perform this Agreement and the Ancillary Agreements to which it is a party and to consummate the transactions contemplated hereby and thereby. The Company is duly qualified to do business and is in good standing as a foreign corporation in all jurisdictions listed on Schedule 3.1 of the Disclosure Schedules delivered by the Company to Buyer in connection herewith (the “ Disclosure Schedules ”), which are the only jurisdictions where the nature of the property owned or leased by it or the nature of the business conducted by it makes such qualification necessary, except where the failure to be so qualified or in good standing would not have a Material Adverse Effect. True and complete copies of the articles of incorporation, certificate of formation, bylaws, limited liability company operating agreement or other similar organizational documents of the Company, all as amended to date, have been previously delivered to Buyer.

3.2. Authority . The execution, delivery and performance by the Company, and its affiliates of this Agreement and the Ancillary Agreements to which the Company or such affiliates is a party and the consummation by the Company and such affiliates of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate or limited liability company action on the part of the Company and such affiliates, as applicable. This Agreement has been, and each Ancillary Agreement to which the Company or its affiliates is a party will be, duly and validly executed and delivered by the Company and such affiliates, to the extent a party thereto, and constitutes, and will constitute, the valid and binding obligation of the Company and such affiliates, as applicable, enforceable against the Company and such affiliates, as applicable, in accordance with its respective terms.

3.3. No Conflict . The execution, delivery and performance by the Company and its affiliates of this Agreement and the Ancillary Agreements to which the Company or its affiliates is a party, and the consummation by the Company and such affiliates of the transactions contemplated hereby does not and will not, with or without the giving of notice or the lapse of time, or both, (w) violate, in any material respect, any provision of law, rule, or regulation to which the Company or such affiliates is subject, (x) violate any order, judgment, or decree applicable to the Company or such affiliates, (y) violate any provision of the articles of incorporation, certificate of formation, bylaws, limited liability company operating agreement or other corporate governance documents of the Company or such affiliates, if applicable, or (z) except as disclosed on Schedule 3.3 of the Disclosure Schedules, violate or result in a breach of or constitute a default (or an event which might, with the passage of time or the giving of notice,

 

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or both, constitute a default) under, or require the consent of any third party under, or result in or permit the termination or amendment of any provision of, or result in or permit the acceleration of the maturity or cancellation of performance of any obligation under, or result in the creation or imposition of any Encumbrance other than Permitted Encumbrances, of any nature whatsoever upon the Acquired Assets or give to others any interests or rights therein under any indenture, deed of trust, mortgage, loan or credit agreement, lease, or other material license, permit, contract, agreement, instrument or commitment to which the Company or such affiliates is a party or by which the Company or such affiliates may be bound or affected.

3.4. Capitalization . The authorized and outstanding capital stock of the Company and the record owners thereof is set forth on Schedule 3.4 of the Disclosure Schedules. Except as disclosed on Schedule 3.4 , there are outstanding no securities convertible into, exchangeable for or carrying the right to acquire equity securities of the Company, or subscriptions, warrants, options, phantom stock interests, rights (including preemptive rights or stock appreciation rights), or other arrangements or commitments obligating the Company to issue or dispose of any of its equity securities or any ownership interest therein. Groundmasters is the sole member of the GM Subsidiary.

3.5. Subsidiaries . Groundmasters does not (i) directly or indirectly own any stock of, equity interest in, or other investment in any other corporation, joint venture, partnership, trust or other person or (ii) have any subsidiaries or any predecessors in interest by merger, liquidation, reorganization, acquisition or similar transaction, except for the GM Subsidiary.

3.6. Financial Statements; Undisclosed Liabilities . The books of account and related records of the Company fairly reflect in all material respects the Company’s assets, liabilities and transactions in accordance with GAAP. The (x) balance sheets of the Company as of December 31, 2005, 2004 and 2003 and the related statements of income and retained earnings and cash flows for the years ended December 31, 2005, 2004 and 2003, each of which have been reviewed by Munninghoff, Lange & Co., and (y) the balance sheet of the Company as of September 30, 2006, and the related statements of income and retained earnings and cash flows for the nine-month period ended September 30, 2006 (the “ Interim Financial Statements ”), have been previously delivered to Buyer and (i) are true and correct in all material respects, (ii) were prepared in accordance with GAAP (except as specifically otherwise noted therein or, in the case of the Interim Financial Statements, except for the absence of footnotes), and (iii) present fairly the financial position, results of operations and cash flows of the Company as of such dates and for the periods then ended in accordance with GAAP. The unaudited balance sheet of the Company as at September 30, 2006 (the “ Balance Sheet Date ”) is attached hereto as Schedule 3.6.1 (the “ Balance Sheet ”). The Company does not have any material liability or obligation of any nature, whether due or to become due, absolute, contingent or otherwise, except (a) to the extent reflected as a liability on the Balance Sheet, (b) liabilities incurred in the ordinary course of business consistent with past practice after the Balance Sheet Date and (c) liabilities disclosed on Schedule 3.6.2 attached hereto.

3.7. Absence of Certain Changes or Events . Except as set forth on Schedule 3.7 of the Disclosure Schedules, since the Balance Sheet Date, the Company has conducted its business only in the ordinary course consistent with past practice and, to the Company’s

 

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knowledge, there has not been a Material Adverse Effect. Without limiting the foregoing, except as set forth on Schedule 3.7 or as reflected in the Balance Sheet, since the Balance Sheet Date, the Company has not (a) purchased or redeemed any shares of its stock, or granted or issued any option, warrant or other right to purchase or acquire any such shares, (b) incurred or discharged any liabilities or obligations (whether absolute, accrued, contingent or otherwise), except liabilities and obligations incurred or discharged in the ordinary course of business consistent with past practice, (c) encumbered any of its properties or assets, tangible or intangible, except for Encumbrances incurred in the ordinary course of business consistent with past practice, (d) granted any increase in the salaries or other compensation payable or to become payable to, or any advance (excluding advances for ordinary business expenses consistent with past practice) or loan to, any officer, director or employee of the Company (other than normal increases for employees averaging not in excess of five percent (5%) per annum made in the ordinary course of business and consistent with past practice), or any increase in, or any addition to, other benefits (including any bonus, profit-sharing, pension or other plan) to which any of the officers, directors and employees may be entitled, or any payments to any pension, retirement, profit-sharing, bonus or similar plan except payments in the ordinary course of business and consistent with past practice made pursuant to the Benefit Plans, or any other payment of any kind to or on behalf of any officer or employee other than payment of base compensation, normal and customary bonuses and reimbursement for reasonable expenses in the ordinary course of business consistent with past practice, (e) suffered any change or, to the Company’s knowledge, received any threat of any change in any of its relations with, or any loss or, to the Company’s knowledge, threat of loss of, any of the suppliers, clients, distributors, customers or employees that are material to the Company’s business, including any loss or change which may result from the transactions contemplated by this Agreement, (f) disposed of or has failed to keep in effect any rights in, to or for the use of any franchise, license, permit or certificate material to the Company’s business, (g) changed any method of keeping of their respective books of account or accounting practices, (h) disposed of or failed to keep in effect any rights in, to or for the use of any of the Intellectual Property (as hereinafter defined) material to the Company’s business, (i) sold, transferred or otherwise disposed of any assets, properties or rights of the Company’s business, except inventory sold in the ordinary course of business consistent with past practice, (j) entered into any transaction, agreement or event outside the ordinary course of the conduct of the Company’s business or with any officer, director, stockholder, or other affiliate of the Company or any “associates” (as defined in the rules and regulations of the Securities and Exchange Commission) of any of the forgoing, (k) made nor authorized any single capital expenditure in excess of $25,000, or capital expenditures in excess of $100,000 in the aggregate, (l) changed or modified in any manner its existing credit, collection and payment policies, procedures and practices with respect to accounts receivable and accounts payable, respectively, including acceleration of collections of receivables, failure to make or delay in making collections of receivables (whether or not past due), acceleration of payment of payables or failure to pay or delay in payment of payables, (m) incurred any material damage, destruction, theft, loss or business interruption, (n) made any declaration, payment or setting aside for payment of any dividend or other distribution (whether in cash, stock or property) with respect to any securities of the Company, (o) made (except as consistent with past practice) or revoked any Tax election or settled or compromised any material Tax liability with any Taxing Authority, or (p) waived or released any material right or claim of the Company or incurred any modifications, amendments or terminations of any Contracts which are in the aggregate materially adverse to the Company or its business.

 

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3.8. Title; Condition and Sufficiency of Acquired Assets .

(a) The Company has good title to all of the Acquired Assets (including those reflected on the Balance Sheet, but excluding any such assets and properties sold, consumed, or otherwise disposed of in the ordinary course of business since the Balance Sheet Date) free and clear of all Encumbrances, except for (i) as set forth on Schedule 3.8.1 of the Disclosure Schedules, (ii) liens for Taxes not yet due and payable to the extent such Taxes are timely discharged by the Company and (iii), in the case of real estate, minor imperfections of title, none of which, individually or in the aggregate, materially detracts from the value of the affected properties, or materially impairs the use of the affected properties in the manner such properties currently are being used or materially impairs the operations of the Company (Encumbrances marked with an asterisk (*) on Schedule 3.8.1 and Encumbrances of the type described in sub-clauses (ii) and (iii) of this Section 3.8(a) being the “ Permitted Encumbrances ”). At the Closing, the Company will convey the Acquired Assets to Buyer free and clear of any and all Encumbrances other than Permitted Encumbrances.

(b) Except as set forth on Schedule 3.8.2 of the Disclosure Schedules, the Acquired Assets are in good operating condition and repair (except for ordinary wear and tear and routine maintenance in the ordinary course of business), are adequate for the purposes for which they are presently used in the conduct of the Company’s business and are usable in a manner consistent with their current use. Except as set forth on Schedule 3.8.2 of the Disclosure Schedules, the Acquired Assets constitute all of the assets, properties and rights necessary for the operation of the Company’s business in the same manner in all material respects as the Company’s business is currently conducted.

3.9. Real Property . The Company does not own any real property.

3.10. Leases; Leased Real Property .

(a) Schedule 3.10 sets forth a true, correct and complete list of all written or oral leases and subleases (the “ Leases ”) of real property to which the Company is a party (collectively, the “ Leased Real Property ”). The Company does not operate its business at any location other than those listed as Leased Real Properties on Schedule 3.10 . True, correct and complete copies of all Leases and all amendments, modifications and supplemental agreements thereto have previously been delivered by the Company to Buyer. The Leases are in full force and effect and are binding and enforceable against the Company and, to the knowledge of the Company, each of the other parties thereto, in accordance with their respective terms and, except as set forth on Schedule 3.10 , have not been modified or amended since the date of delivery to Buyer. No party to any Lease has sent written notice to the other claiming that such party is in default thereunder and that such default remains uncured. Except as set forth on Schedule 3.10 , and, only with respect to any third party, to the Company’s knowledge, there has not occurred any event which would constitute a breach of or default in the performance of any covenant, agreement or condition contained in any Lease, nor has there occurred any event which with the passage of time or the giving of notice or both would constitute such a breach or default, except

 

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for breaches or defaults that are not material. There is no current or pending event or circumstance that would permit the termination of any of the Leases or the increase of any obligations, liabilities or restrictions of the Company under the Leases, except for any rental increase as set forth in the terms of any such Lease. Except as set forth on Schedule 3.10 , no construction, alteration or other leasehold improvement work with respect to any of the Leases remains to be paid for or to be performed by the Company. The Company does not have any obligations to provide deposits, letters of credit or other credit enhancements to retain its rights under the Leases or otherwise operate its business at the Leased Real Properties except as set forth in Schedule 3.10.

(b) The Company presently enjoys peaceful and undisturbed possession of its Leased Real Property sufficient for current use and operations. Neither the Company nor Landlord have received written notice of any material eminent domain, condemnation or other similar proceedings pending or threatened against the Company or Landlord with respect to, or otherwise affecting any portion of, the Leased Real Property. The current use of the Leased Real Property in the conduct of the Company’s business does not violate any Lease. Except as set forth on Schedule 3.10 , and, only with respect to any third party, to the Company’s knowledge, there is no violation of any covenant, condition, restriction, easement or order of any governmental authority having jurisdiction over the Leased Real Property or the use or occupancy thereof, except for such violations as would not materially interfere with the continued use and operations of the property to which they relate or materially adversely affect the value thereof for its current use. Except as set forth on Schedule 3.10 , the Leased Real Property is in compliance in all material respects with all applicable building, zoning, subdivision, health and safety and other land use and similar applicable laws, rules and regulations, permits, licenses and certificates of occupancy affecting the Leased Real Property, and neither the Company nor the Principal or Landlord have received any notice of any violation or claimed violation by any of them of any such laws, rules and regulations with respect to the Leased Real Property which have not been resolved or for which any obligation of the Company remains to be fulfilled, including but not limited to payments of monetary damages, fines or penalties, or completion of any remedial or corrective measures. Except as set forth on Schedule 3.10 , the Leased Real Property is adequately served by proper utilities, sufficient parking and other building services necessary for its current use and for compliance with all applicable laws, rules, regulations, permits, licenses and certificates of occupancy.

(c) The Principal holds all legal, equitable and beneficial interests in the Landlord.

3.11. Working Capital Assets .

(a) All of the Company’s accounts and notes receivable represent amounts receivable for products actually delivered or services actually provided (or, in the case of non-trade accounts or notes represent amounts receivable in respect of other bona-fide business transactions), have arisen in the ordinary course of business and have been or will be billed and are generally due within 30 days after such billing. All such accounts and notes receivable included in the Acquired Assets (the “ Acquired Receivables ”) are and will be fully collectible within not more than 90 days following the Closing Date, except to the extent of a reserve in an amount not in excess of the reserve for doubtful accounts reflected on the Balance Sheet.

 

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(b) Except as set forth on Schedule 3.11.1 , since the Balance Sheet Date, there have not been any write-offs as uncollectible of the Company’s accounts receivable, except for write-offs in the ordinary course of business consistent with past practice and not in excess of $10,000 in the aggregate. Schedule 3.11.2 of the Disclosure Schedules sets forth (a) the total amount of accounts receivable of the Company outstanding as of the Balance Sheet Date and (b) the agings of such accounts receivable based on the following schedule: 0-30 days, 31-60 days, 61-90 days, and over 90 days, from the date of invoice.

(c) Except as disclosed on Schedule 3.11.3 , (i) all of the inventories of the Company, including that reflected in the Balance Sheet, are valued at the lower of cost or market, the cost thereof being determined on a first-in, first-out basis, except as disclosed in the Balance Sheet; (ii) all of the inventories of the Company reflected in the Balance Sheet and all inventories acquired since the Balance Sheet Date consist of items that are marketable and fit for their particular use, are not defective and are of a quality and quantity usable and saleable in the ordinary course of the Company’s business within a reasonable period of time and at normal profit margins, and all of the raw materials and work in process inventory of the Company reflected on the Balance Sheet and all such inventories acquired since the Balance Sheet Date can reasonably be expected to be consumed in the ordinary course of business within a reasonable period of time; and (iii) none of the inventory of the Company is obsolete or slow moving.

3.12. Patents, Trademarks, Etc .

(a) Schedule 3.12.1 of the Disclosure Schedules sets forth a list of all United States or foreign patents, trademark registrations, trade names, domain name registrations, copyright registrations, and all applications therefore, owned by the Company (the “ Registered Rights ”), specifying as to each such item, as applicable, the owner thereof and the jurisdiction in which the item is issued, registered or applied for, including any issuance, registration or application numbers, and the date of application, issuance or registration of the item. Except as set forth on Schedule 3.12.2 of the Disclosure Schedules, to the Company’s knowledge (a) the Company owns or possesses adequate rights to use all patents, trademarks, service marks, copyrights, know-how, trade secrets, product formulas, franchises, inventions, rights-to-use and other intellectual property rights (“ Intellectual Property ”) used or held for use by the Company, (b) the conduct of the Company’s business as now being conducted, and the use of the Company’s Intellectual Property, does not conflict with any Intellectual Property of others, (c) no person other than the Company owns or has any direct or indirect proprietary or financial interest in any of the Company’s owned Intellectual Property, (d) there is no contractual restriction affecting the use of the Company’s Intellectual Property, and the Company has not given any indemnification to any Person against infringement of the Intellectual Property of others, (e) except for patent applications and trademark applications, the Registered Rights are valid and in full force and effect and not subject to any proceeding challenging their extent or validity, (f) the Company is the applicant of record in all patent applications and applications for trademarks, and no opposition, extension of time to oppose, interference, rejection, or refusal to register has been received in connection with any such applications, (g) none of the trade secrets, confidential know-how or other confidential or proprietary information of the Company have been disclosed to any Person unless such disclosure was necessary and made pursuant to an appropriate confidentiality agreement, or was made pursuant to a subpoena or similar legal

 

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process and (h) the Company is not aware of any present infringement or misappropriation of any of the Intellectual Property owned by the Company and used in the Company’s business by any person, and the Company has not asserted or threatened any claim or objection against any person for any such infringement or misappropriation, nor is there any basis in fact for any such objection or claim.

(b) The computer software used in the Company’s business is adequate for the operation of the Company’s business. Except as set forth on Schedule 3.12.3 , the Company has taken commercially reasonable steps to ensure that the computer software owned, licensed or used by them does not contain any viruses, “worms,” disabling or malicious code, or other anomalies that would materially impair the functionality of the computer software. The Company has taken commercially reasonable steps to provide for the backup, archival and recovery of the critical business data of the Company.

3.13. Contracts . Schedule 3.13.1 of the Disclosure Schedules contains a complete and accurate list of all outstanding Contracts (classified (a) through (m), as applicable, based on the definition of Contracts set forth in Section 9.5 hereof). Each such Contract is valid, binding and enforceable against the Company and the other parties thereto in accordance with its terms and is in full force and effect. Except as set forth in Schedule 3.13.2 of the Disclosure Schedules, the Company and, to the knowledge the Company, each of the other parties thereto, have performed in all material respects all obligations required to be performed by them under, and are not in material default under, any of such Contracts and no event has occurred which, with notice or lapse of time, or both, would constitute such a default. The Company has not received any written claim from any other party to any Contract that such Company has breached any obligations to be performed by it thereunder, or is otherwise in default or delinquent in performance thereunder.

3.14. Litigation . Except as set forth in Schedule 3.14 of the Disclosure Schedules, there is no material action, claim, suit, proceeding or investigation in any court or before any governmental agency or authority or arbitrator (“ Litigation ”) pending or, to the Company’s knowledge, threatened against the Company, any of its properties or assets or (to the extent the Company may have an obligation to provide indemnification or may otherwise become liable) any of its officers, directors or employees. Except as set forth in Schedule 3.14 of the Disclosure Schedules, the Company is not party to or bound by any material outstanding orders, rulings, judgments, settlements, arbitration awards or decrees (or agreement entered into or any administrative, judicial or arbitration award with any governmental authority) with respect to or affecting the Acquired Assets, personnel or business of the Company. The Company has provided Buyer with a list setting forth a general description of settlements occurring since January 1, 2004 regarding actual or threatened lawsuits (excluding worker’s compensation claims) binding on the Company.

3.15. Compliance with Laws; Permits . The Company has been and is in material compliance with all applicable federal, state, local, foreign or industry laws, rules and regulations currently in effect. To the Company’s knowledge, the Company complies with the Immigration Reform and Control Act of 1986 and the rules and regulations thereunder regarding its responsibility to verify the identity and employment eligibility of all employees at the time they are hired or leased, and the Company uses commercially reasonable efforts to have an

 

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employment eligibility verification process that is completed correctly by the employees responsible for that function. Set forth on Schedule 3.15.1 of the Disclosure Schedules are all governmental or other industry permits, registrations, certificates, certifications, exemptions, licenses, approvals and authorizations necessary for the conduct of the Company’s business as presently conducted, each of which the Company validly possesses and are in full force and effect, and each of which is and will be included in the Acquired Assets (unless such relates to an Excluded Asset) and are validly transferred to Buyer at the Closing so as to allow Buyer after the Closing Date to continue to operate without interruption the business operated by the Company immediately prior to the Closing, except for failures to so possess, be in effect or be so transferred to Buyer set forth on Schedule 3.15.1 . Except as set forth in Schedule 3.15.2 of the Disclosure Schedules, no notice, citation, summons or order has been issued, no complaint has been filed and served, no penalty has been assessed and notice thereof given, and no investigation or review is pending or, to the knowledge of the Company, threatened with respect to the Company, by any governmental authority with respect to any alleged (a) violation by the Company of any law, ordinance, rule, regulation or order, or (b) failure by the Company to have any permit, registration, certificate, certification, exemption, license, approval or authorization required in connection with the conduct of or otherwise applicable to the Company’s business.

3.16. Environmental Matters . Except as specifically disclosed on Schedule 3.16.1 of the Disclosure Schedules:

(a) The Company has conducted and is now conducting its operations in compliance in all material respects with all Environmental Laws applicable thereto. The Company holds and has been and is in compliance in all material respects with all permits, certificates, licenses, approvals, registrations and authorizations required under Environmental Laws for the conduct of the Company’s business as previously and currently conducted (“ Environmental Permits ”), all such Environmental Permits are in full force and effect, and all such Environmental Permits are and will be, to the extent consistent with applicable law and the terms of such Environmental Permits, included in the Acquired Assets and validly transferred to Buyer at the Closing so as to allow Buyer to operate the Company’s business after the Closing Date as the Company is currently operating such business without interruption. Schedule 3.16.2 of the Disclosure Schedules lists all Environmental Permits.

(b) The Company has not in the past nor does it presently use, possess, generate, treat, manufacture, process, manage, handle, store, recycle, transport or dispose of (“ Manages ” or “ Management ,” as the context requires) Hazardous Substances in a manner which has caused, causes or threatens to cause a Release.

(c) The Company has not received any notice, citation, summons, order or complaint, no penalty has been assessed or is pending or, to the knowledge of the Company, threatened by any third party (including any governmental agency) with respect to (i) the Management, Release or threatened Release of Hazardous Substances by or on behalf of the Company (or to the Company’s knowledge, any of its predecessors) or in relation to its past or present operations or with respect to exposure to Hazardous Substances, (ii) non-compliance with Environmental Laws or (iii) failure to hold or comply with Environmental Permits. The Company has not received, and to the Company’s knowledge no one else has received, any request for information, notice of claims, demand or other notification that the Company (or to

 

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the Company’s knowledge, any of its predecessors) is or may be potentially responsible with