Exhibit 10.1
ASSET PURCHASE AGREEMENT
BETWEEN
CULP, INC.
(the "Buyer")
and
INTERNATIONAL TEXTILE GROUP, INC.
(the "Seller")
Dated as of January 11, 2007
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TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS AND CONSTRUCTION
1.1
Definitions.............................................................1
1.2
Construction............................................................1
ARTICLE II
PURCHASE, TERMS OF PAYMENT AND CLOSING
2.1
Purchase and Sale of
Assets.............................................2
2.2
Purchased
Assets........................................................2
2.3 No
Assumption of
Liabilities............................................2
2.4
Purchase Price; Materials
Credit........................................4
2.5 Manner
of Payment; Closing Date
Inventory...............................4
2.6
Closing.................................................................5
2.7
Closing
Obligations.....................................................5
2.8
Certain
Expenses........................................................6
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLER
3.1
Organization; Good
Standing.............................................6
3.2
Authority;
Enforceability...............................................6
3.3
Consents and Approvals; No
Violation....................................7
3.4 Books
and
Records.......................................................7
3.5
Absence of Certain Changes or
Events....................................8
3.6
Litigation..............................................................8
3.7
Governmental
Authorizations.............................................8
3.8
Compliance with Laws and Governmental
Authorizations....................8
3.9
Assets..................................................................9
3.10
Inventory...............................................................9
3.11 Proprietary
Rights......................................................9
3.12 Warranties
and Products................................................11
3.13
Suppliers..............................................................11
3.14
Customers..............................................................11
3.15
Brokers................................................................11
3.16 Full
Disclosure........................................................12
3.17 Securities
Matters.....................................................12
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES RELATING TO THE BUYER
4.1
Organization...........................................................13
4.2
Authority;
Enforceability..............................................13
4.3
Consents and Approvals; No
Violation...................................13
4.4
Litigation.............................................................14
4.5
Brokers................................................................14
4.6
Buyer's
Stock..........................................................14
ARTICLE V
COVENANTS AND AGREEMENTS
5.1 Access
to
Information..................................................14
5.2
Confidentiality........................................................14
5.3
Operation of the Business of the
Seller................................15
5.4
Efforts to Satisfy Closing
Conditions..................................15
5.5
Notification...........................................................16
5.6
Employees..............................................................16
5.7
Exclusivity............................................................16
5.8
Mattress
Covers........................................................17
5.9
Securities
Matters.....................................................17
5.10
Noncompetition.........................................................17
ARTICLE VI
CLOSING CONDITIONS
6.1 Mutual
Conditions......................................................18
6.2
Buyer's
Conditions.....................................................18
6.3
Seller's
Conditions....................................................19
ARTICLE VII
INDEMNIFICATION
7.1
Survival;
Knowledge....................................................19
7.2
Seller's Agreement to
Indemnify........................................19
7.3
Buyer's Agreement to
Indemnify.........................................20
7.4
Limitations on Seller's
Indemnity......................................20
7.5
Limitations on Buyer's
Indemnity.......................................21
7.6
Procedure for Indemnification - Third-Party
Claims.....................21
7.7
Alleged
Breaches.......................................................23
7.8
Indemnification Procedure - Direct
Claims..............................23
7.9
Interest...............................................................24
7.10 Return of
Buyer's Stock................................................24
7.11 Remedies
Not
Exclusive.................................................24
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ARTICLE VIII
TERMINATION
8.1
Termination............................................................24
8.2
Procedure and Effect of
Termination....................................25
ARTICLE IX
GENERAL PROVISIONS
9.1
Expenses...............................................................25
9.2
Amendment and
Modification.............................................26
9.3 Waiver
of Compliance;
Consents.........................................26
9.4
Notices................................................................26
9.5
Publicity..............................................................27
9.6
Assignment; No Third-Party
Rights......................................27
9.7
Governing
Law..........................................................27
9.8
Jurisdiction; Service of
Process.......................................28
9.9
Further Assurances;
Records............................................28
9.10
Severability...........................................................28
9.11
Construction...........................................................28
9.12 Disclosure
Schedule....................................................28
9.13 Time of
Essence........................................................29
9.14
Counterparts...........................................................29
9.15 Specific
Performance...................................................29
9.16 Entire
Agreement.......................................................29
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EXHIBITS
A Form of
Registration Rights and Shareholder Agreement
B Form of
Bill of Sale
C-1 Form
of Patent and Trademark Assignment
C-2 Form
of Copyright Assignment
D Form of
Transition and Manufacturing Services Agreement
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ASSET PURCHASE AGREEMENT
This
Asset Purchase
Agreement,
dated as of January
11, 2007, is
between
Culp, Inc., a North
Carolina corporation (the "Buyer"), and International
Textile Group, Inc., a Delaware corporation (the "Seller").
Background Statement
The
Seller desires to sell, and the Buyer desires to purchase,
certain of
the Seller's mattress
ticking assets (consisting of inventory and related
proprietary rights), for the consideration and on the terms set
forth herein.
Statement of Agreement
The
parties agree as follows:
ARTICLE I
DEFINITIONS AND CONSTRUCTION
1.1
Definitions. Capitalized terms used in this Agreement have the
meanings
given to them in Appendix 1.
1.2
Construction.
(a)
The article and section headings contained in this Agreement are
solely
for the purpose of reference and convenience, are not part of the agreement
of
the parties,
and shall not in any
way limit, modify or
otherwise affect the
meaning or interpretation of this Agreement.
(b)
References to "Sections" or "Articles" refer to corresponding
Sections
or Articles of this Agreement unless otherwise specified.
(c)
Unless the context requires otherwise, the words "include,"
"including"
and variations thereof mean without limitation, the words "hereof," "hereby,"
"herein," "hereunder"
and similar terms
refer to this Agreement as a whole and
not any particular
section or article
in which such words appear, and any
reference to a statute, regulation or law shall include any
amendment thereof or
any successor thereto and any rules and regulations promulgated
thereunder.
(d)
Unless the context
requires otherwise,
words in the singular
include
the plural, words in
the plural include the singular, and words importing any
gender shall be applicable to all genders.
(e)
If a term is defined as one part of speech (such as a noun), it shall
have a corresponding
meaning when used as another part of speech (such as a
verb).
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(f)
Currency amounts referenced herein are in U.S. Dollars.
(g)
References to a number
of days refer to calendar days unless Business
Days are specified.
Except as otherwise specified, whenever any action must be
taken on or by a day that is not a Business Day, then such action
may be validly
taken on or by the next day that is a Business Day.
(h)
All accounting terms used herein and not expressly defined herein
shall
have the meanings given to them under GAAP.
ARTICLE II
PURCHASE, TERMS OF PAYMENT AND CLOSING
2.1
Purchase and Sale of Assets. On the terms and subject to the
conditions
of this Agreement, on
the Closing Date, the Seller shall sell, convey, assign,
transfer and deliver
to the Buyer, and the
Buyer shall purchase,
acquire and
accept from the
Seller, all of the Purchased Assets, free and clear of all
Liens, except for
Permitted Liens, in exchange for payment of the Purchase
Price.
2.2
Purchased Assets. For
purposes of this Agreement, the term "Purchased
Assets" means all of the following assets of the Seller and all of
the Seller's
rights therein:
(a)
all Finished Goods
Inventories
of the Seller
related to the
Product
Line, including all
rights to all such Inventories that have been manufactured
by third parties and
that are in transit to the Seller and to which Seller has
taken title as of the Effective Time (the "In-Transit Inventories"
and, together
with all other such Finished Goods Inventories, the "Purchased
Inventories");
(b)
the Proprietary
Rights of the Seller
listed in Schedule 2.2(b) hereto
(the "Purchased Proprietary Rights"), which shall include, without limitation,
all artwork
and patterns relating to the Purchased Inventories and all
copyrights and related copyright information with respect
thereto;
(c)
all electronic
design files and specifications for each pattern
described above,
and all client and
customer lists and
records, research
and
development reports
and records, service and warranty records, bills of
material, design and
creative records and product accounting records, as and to
the extent related to the Product Line.
It is expressly
understood
that the Purchased Assets will not include any
accounts receivable
or any furniture, fixtures or other property, plant or
equipment of the
Seller, or any
trademarks
or trade names of
Seller that are
used in any business
of the Seller other
than in connection
with the Product
Line, including the
"Burlington"
name and the weave
logo associated with that
name ("Excluded Assets").
2.3
No Assumption of Liabilities. It is understood that in
connection with
the transactions contemplated hereby, the Buyer shall not assume
any obligations
or liabilities
of the Seller, except for payment obligations in respect to
purchase orders for finished goods that are open as of the
Effective Time ("Open
Purchase Order
Obligations"), which
Open Purchase Order
Obligations the Buyer
will assume on the Closing Date. It is further understood that,
without limiting
the foregoing, the
Buyer shall not assume any liabilities or obligations of the
Seller or any
Affiliate of the
Seller incurred, arising from or out of, in
connection with or relating to:
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(i) any claims made by or against the Seller or any Affiliate of the
Seller, whether before
or after the Closing Date, that arise out of events
prior to the
Effective Time, including any and all accounts payable,
accrued expenses, customer rebates or quality claims relating to
goods sold
or
shipped prior to Closing, and including any liabilities or obligations
relating to investigations by any Governmental Authority;
(ii) any Taxes, including any Taxes arising by reason of the
transactions contemplated herein;
(iii) products
manufactured,
sold
or distributed prior to the
Effective Time,
including liabilities or obligations
related to product
warranties, recalls
of such products or defects with respect to such
products;
(iv) any liabilities
or obligations under any supply contracts to
which the Seller or any Affiliate of the Seller is party or otherwise
relating to the Product Line;
(v) any
liability associated with Seller's employees or employee
benefit plans;
(vi) any employment,
severance,
retention or
termination
agreement
with
any employee (except
as provided in the Transition and Manufacturing
Services Agreement);
(vii) any employee grievance;
(viii) any obligation
to indemnify,
reimburse or advance
amounts to
any
officer, director, employee or agent;
(ix) any Proceeding pending as of the Effective Time or any
Proceeding
commenced after the
Effective Time that arises out of or relates to
any
occurrence or event happening prior to the Effective Time;
(x) any compliance or noncompliance with any Legal Requirement of
any
Governmental Authority;
(xi) any credit facility or any security interest related
thereto;
(xii) any fees
and expenses in connection with the transactions
contemplated hereby;
(xiii) any obligation
relating to any assets
of the Seller not being
conveyed to the Buyer; and
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(xiv) any obligation
of the Seller under this Agreement or any other
document executed in connection with the transactions contemplated
hereby.
2.4
Purchase Price;
Materials Credit. In
consideration of the sale of the
Purchased Assets and
in exchange for the granting of the Materials Credit (as
defined below), at the
Closing and subject to the conditions contained herein,
the Buyer shall pay to the Seller an aggregate amount equal to $8,300,000
(the
"Base Purchase
Price"), adjusted as
follows: (i) plus the
amount, if any, by
which the amount of the Closing Date Inventory is greater than $9,200,000 or
(ii) minus the amount, if any, by which the amount of the Closing
Date Inventory
is less than $9,200,000, as applicable (as so adjusted, the
"Purchase Price").
The
Seller and the Buyer
acknowledge and agree
that the Purchase Price is
based in part on the
value of the Seller's Inventories not consisting of
Finished Goods Inventories and on hand as of the Effective Time.
Accordingly, it
is understood that a
portion of the Purchase Price is payable in exchange for a
credit to be established for the Buyer's account for the amount of
Inventories
on hand as of the Effective Time, which Inventories do not consist of
Finished
Goods Inventories
(the "Materials Credit"). The Materials Credit, which
effective as of the
Effective Time is hereby granted to the Buyer, will be
applied to the
payment of certain amounts owing by the Buyer to the
Seller
pursuant to Sections 3.1(c) and (d) of the Transition and
Manufacturing Services
Agreement (as defined in Section 2.7(a)(iii)).
2.5
Manner of Payment; Closing Date Inventory.
(a)
The Purchase Price shall be paid as follows:
(i) On the Closing
Date, the Buyer shall
pay to the Seller, by
wire
transfer of immediately available funds to an account or
accounts that the
Seller shall designate
in writing to the Buyer at least two Business Days
prior to the Closing
Date, an aggregate
amount equal to
$2,500,000 (the
"Cash Payment"); and
(ii) Following
Closing, on the
Business Day next succeeding the date
on
which the Buyer and the Seller agree upon the Closing Date Inventory
pursuant to Section
2.5(b) below, the
Buyer will issue and deliver to the
Seller the number of
shares of the common
stock of Buyer
(the "Buyer's
Stock") valued in the
aggregate at an amount
equal to the Purchase
Price
minus the amount of the Cash Payment, based on a price per share of
the
Buyer's Stock of $6.60
per share (as
adjusted for any stock dividends,
stock splits or other changes in the Buyer's capital stock since December
31,
2006 having a dilutive
effect on the Buyer's Stock being issued to the
Seller), which issuance shall be made subject to the terms set
forth in the
registration rights and shareholder agreement substantially in the form of
Exhibit A attached
hereto executed by the Seller and the Buyer (the
"Registration Rights and Shareholder Agreement"). No fractional shares of
the
Buyer's Stock shall be issued in connection with this Agreement. If
the
Seller otherwise
has the right to receive .5 or more of a share of the
Buyer's Stock, the
Seller shall receive an additional share of the Buyer's
Stock; otherwise,
the Seller shall receive no such shares or other
consideration for such
a fractional interest.
The Buyer's Stock
shall be
evidenced by a stock
certificate that shall
bear legends
reflecting any
restrictions on
the resale of the underlying shares imposed by the
Securities Act and the
regulations
promulgated
thereunder.
A condition
precedent to the Buyer's obligation to issue such Buyer's Stock shall be
the
delivery by the Seller of a certificate of an executive
officer of the
Seller re-confirming the warranties set forth in Section 3.17
hereof.
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(b)
Following the execution and delivery of this Agreement, the Buyer and
the Seller
shall jointly conduct a physical count and calculation of the
Inventories on hand as
of the Closing
Date, which shall be based upon the
Seller's normal
lower of cost or
market valuation
methodology,
applied on a
basis consistent with prior practice. It is anticipated that the
determination
of the Closing Date Inventory will be finalized following the Closing Date. If
the Buyer and the Seller are unable to agree on such Closing Date
Inventory, the
parties shall
engage a mutually agreeable independent certified public
accounting firm to
resolve the issues in
dispute. The
accounting
firm shall
apply accounting
principles, in
accordance with the provisions of this Section
2.5(b), to the
issues at hand and
shall not have the
power to alter,
modify,
amend, add to or subtract from any term or provision of this
Agreement, and the
accounting firm's engagement shall be limited in scope to the
disputed issues or
amounts identified in
the notice of objection. The parties shall instruct the
accounting firm to
render its decision
within 10 days of the
engagement, and
such decision shall be binding on the parties. The cost of the accounting
firm
shall be borne by the party that does not prevail in the
dispute.
2.6
Closing. The closing
(the "Closing")
of the purchase and
sale of the
Purchased Assets
shall take place at
the offices of the
Buyer in High
Point,
North Carolina,
beginning at 10:00 a.m., local time, on January 22, 2007 or
on
such other date or at such other time or place as the parties
shall agree.
The
Closing shall be effective as of 12:01 a.m. on the Closing Date
(the "Effective
Time") and all actions scheduled in this Agreement for the Closing
Date shall be
deemed to occur
simultaneously at the Effective Time. Subject to the provisions
of Article VIII,
failure to
consummate
the purchase and sale
provided for in
this Agreement on the date determined pursuant to this Section will not
result
in the termination
of this Agreement and will not relieve any party of any
obligation under this
Agreement.
2.7
Closing Obligations. At the Closing:
(a)
The Seller shall deliver to the Buyer:
(i) a bill of sale, assignment and assumption agreement
substantially
in
the form of Exhibit B attached hereto (the "Bill of Sale")
executed by
the
Seller and the Buyer,
conveying the Purchased Assets to the Buyer and
providing for the
assumption
by the Buyer of the Open Purchase Order
Obligations;
(ii) an assignment of patents and trademarks substantially in the
form
of
Exhibit C-1 attached hereto, and an assignment of copyrights
substantially in the
form of Exhibit C-2, each executed by the Seller (the
documents referenced in this clause (ii), collectively, the "Intellectual
Property Assignments") executed by the Seller;
(iii) a transition and manufacturing services agreement
substantially
in
the form of Exhibit D
attached hereto executed by the Seller (the
"Transition and
Manufacturing Services Agreement"); and
5
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(iv) the Registration Rights and Shareholder Agreement.
(b)
The Buyer shall deliver to the Seller:
(i) the Cash Payment
to be paid to the
Seller pursuant to Section
2.5(a)(i);
(ii) the Transition and Manufacturing Services Agreement executed by
the
Buyer;
(iii) the Registration
Rights and Shareholder
Agreement executed
by
the
Buyer; and
(iv) the Bill of Sale executed by the Buyer.
2.8
Certain Expenses.
The Seller shall pay
any sales or use Taxes arising
out of the transactions contemplated herein.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The
Seller represents and warrants to the Buyer that:
3.1
Organization;
Good
Standing. The Seller is a corporation duly
organized, validly
existing and in good standing under the laws of the State of
Delaware. The Seller
has full corporate
power and authority to
own or use the
Purchased Assets and to conduct its business as presently
conducted. The
Seller
is duly qualified to do business as a foreign corporation and is in good
standing in the states, provinces and jurisdictions in which either the
nature
of the activities of the Seller or the ownership or use of the
Purchased Assets
makes such
qualification
necessary. No other
jurisdiction has given notice to
the Seller
indicating
that the Seller should be qualified in any other
jurisdiction.
3.2
Authority; Enforceability. The Seller has the absolute and
unrestricted
right, authority,
power and capacity to
(i) execute and deliver this Agreement
and each certificate,
document and agreement to be executed by the
Seller in
connection herewith
(the certificates,
documents and agreements to be executed
by the Seller in
connection with this
Agreement,
collectively,
the "Seller
Documents") and (ii)
perform its
obligations hereunder
and thereunder. The
execution and
delivery of this Agreement and the Seller Documents and the
consummation of the transactions contemplated hereby and thereby
have been duly
and validly authorized
by the Seller, and no
other proceedings on
the part of
the Seller are necessary to authorize this Agreement or any Seller
Document or
to consummate the transactions contemplated hereby or thereby. This Agreement
has been duly and validly executed and delivered by the Seller and
constitutes a
legal, valid and
binding obligation of
the Seller,
enforceable against it
in
accordance with its
terms. Upon
execution and delivery by the Seller of
each
Seller Document,
such Seller
Document shall constitute a legal, valid and
binding obligation
of the Seller, in each case enforceable against it in
accordance with its terms.
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3.3
Consents and Approvals; No Violation.
(a)
No Governmental
Authorization
is required in
connection with (i) the
execution or delivery by the Seller of this Agreement or the Seller
Documents,
(ii) the performance
of the Seller's
obligations
under this Agreement
or the
Seller Documents or
(iii) the consummation
of the transactions contemplated
hereby.
(b)
Except as disclosed in Section 3.3 of the Disclosure Schedule,
neither
the execution and
delivery of this
Agreement and the
Seller Documents by
the
Seller nor the performance of the Seller's obligations hereunder or thereunder
nor the consummation of the transactions contemplated hereby will, directly or
indirectly (with or without notice or lapse of time):
(i) contravene,
conflict with or result in any violation of any
provision of the certificate
of incorporation or bylaws of the Seller, any
resolution adopted by
the board of directors or shareholders of the Seller
or
any agreement among shareholders of the Seller;
(ii) contravene,
conflict with or result in a breach of any of
the
terms or provisions
of, or give any Person a right to declare a default or
exercise any remedy under, or to accelerate the maturity or
performance of,
or
to cancel, terminate
or modify any
Contract that is material to the
business of the Seller;
(iii) result in the
creation of any Lien upon any of the
Purchased
Assets;
(iv) contravene,
conflict with,
violate, or give any Governmental
Authority or other Person the right to challenge any of the transactions
contemplated
hereby or exercise any remedy (including revocation,
withdrawal, suspension
or modification of any Governmental Authorization)
or
obtain any relief under, any Legal Requirement applicable to the
Seller;
(v) cause the Buyer to become subject to, or to become liable
for the
payment of, any Tax;
(vi) contravene,
conflict with or
violate the terms or
requirements
of,
or result in any loss, or right of revocation, withdrawal, suspension,
termination or modification of, any Governmental Authorization;
(vii) cause any of the
Purchased Assets to be
reassessed or revalued
by
any taxing authority or other Governmental Authority; or
(viii) otherwise
require the Seller or the Buyer to give
any notice
to,
or obtain any consent from, any Person.
3.4
Books and Records.
The books and records,
files and other
materials
relating to the Purchased Assets and the Seller's
operation and use
thereof in
connection with its business (including without limitation sales records and
customer lists) and
that have been furnished or made available by the Seller to
the Buyer in connection with the transactions contemplated hereby are true and
correct in all material respects.
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3.5
Absence of Certain Changes or Events. Since November 15, 2006,
except
as set forth in Section 3.5 of the Disclosure Schedule, there has
not been any:
(i) event or condition
that has had, or could
reasonably be expected
to
have, a Material Adverse Effect;
(ii) loss or damage
(whether or not covered by insurance) affecting
any
of the Purchased Assets;
(iii) indication
by any customer or supplier of the Seller in
connection with the
Product Line of any intention to discontinue or change
the
terms of its relationship with the Seller; or
(iv) the loss of any material Purchased Proprietary Right as a result
of
the failure to make any filing with or pay any fee to any
Governmental
Authority; or
(b)
agreement,
whether oral or written, by the Seller to do any of the
foregoing.
3.6
Litigation.
(a)
There are no
Proceedings that have
been commenced
by or against the
Seller in connection
with any of the
Purchased Assets or, to the Seller's
Knowledge, that have been threatened against or may affect the
Seller (including
its officers,
directors or employees
in their capacity as
such) in connection
with any of the Purchased Assets, or that challenge, or that may
have the effect
of preventing,
delaying, making
illegal, or otherwise
interfering
with, the
transactions
contemplated by
this Agreement. No event has occurred or
circumstance exists
that may give rise to or serve as a basis for the
commencement of any such Proceeding.
(b)
There are no Orders to which the Seller is subject in connection with
any of the Purchased
Assets or the Seller's
use or operation
thereof or that
challenge, or that may have the effect of preventing, delaying, making illegal,
or otherwise interfering with, the transactions contemplated by this
Agreement,
or that could affect the enforceability of this Agreement
against the Seller or
impair the Seller's ability to consummate the transactions
contemplated by
this
Agreement. To the Seller's Knowledge, no officer, director, agent, or employee
of the Seller is subject to any Order that prohibits such officer, director,
agent, or employee
from engaging in or
continuing any
conduct, activity,
or
practice relating to the use or operation of the Purchased
Assets.
3.7
Governmental Authorizations. No Governmental Authorization is
necessary
in order for the Seller to own, operate or use any of the
Purchased Assets in
connection with the Product Line.
3.8
Compliance with Laws and Governmental Authorizations(a) . The Seller
is, and at all times since August 2, 2004, has been, in compliance
with (i) all
Legal Requirements
applicable to the Seller in connection with the Product Line
and (ii) all Governmental Authorizations of the Seller in connection with
such
business.
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3.9
Assets. Except as set
forth in Section 3.9 of the Disclosure Schedule
(which exceptions
shall be cleared as of
the Effective Time),
the Seller owns
good and valid
title to all of the Purchased Assets, whether tangible or
intangible, free and clear of all Liens, except for Permitted
Liens.
3.10
Inventory. All of the
Purchased Inventories
consist of a quality and
quantity usable and
salable in the Ordinary Course, except for obsolete items
and items of
below-standard quality
that have been written off or written down
to net realizable
value in the
accounting
records of the Seller as of the
Closing Date. All of the Purchased Inventories have been priced at
the lower of
cost or market in
accordance with GAAP
on a first in,
first out basis. The
quantities of each item included in the Purchased Inventories are not excessive
but are reasonable in the present circumstances of the Seller's
business. The
Seller is not in possession of any Finished Goods Inventories in
connection with
the Product Line not
owned by the Seller,
including goods
already sold. No
customer of the Seller
in connection
with the Product Line has the right to
return for credit or refund items that, if returned, would be included in the
Purchased Inventories
pursuant to any
agreement,
understanding or practice of
the Seller with
respect to taking back any product (other than with respect to
defective products).
Without limiting the generality of the foregoing, there is
no product of the
Seller in connection with the Seller's mattress ticking
business in the
possession of
customers of the Seller on consignment or on a
similar basis.
3.11
Proprietary Rights.
(a)
Ownership and Right to Use. The Seller owns, has been granted a
license
to use or otherwise
has the right to use all of the Purchased Proprietary
Rights. The Purchased
Proprietary
Rights constitute all of the Proprietary
Rights used by the Seller in connection with the Product Line. Except as set
forth in Section 3.11(a) of the Disclosure Schedule, the Seller does not have,
and the Buyer will not have upon the Closing, (i) any contractual
limitation or
restriction on its
right to use any Purchased Proprietary Right, (ii) any
obligation to pay any
royalty or other fee to any Person relating to any
Purchased Proprietary
Right or (iii) any
obligation
to any other Person to
register, protect or
otherwise take any
action with respect to
any Purchased
Proprietary Right. There is no agreement or commitment on the part
of the Seller
that grants any Person a license in any Purchased Proprietary
Right.
(b)
Acquired Proprietary Rights. Section 3.11(b) of the Disclosure
Schedule
identifies each Purchased Proprietary Right that was created for the
Seller by
any Person other than
an employee
acting within the scope of the
employee's
duties for the Seller.
Except as set forth in Section 3.11(b) of the Disclosure
Schedule, each such
Person has entered into an agreement or contract with the
Seller pursuant
to which it has
assigned to the Seller all of such
Person's
rights in such
Purchased Proprietary
Rights, free of any restrictions, and
agreed not to use or
disclose any Trade
Secrets included in such Purchased
Proprietary Rights.
Section 3.11(b) of the
Disclosure Schedule identifies each
Purchased Proprietary
Right that is owned by
any other Person and
licensed to
the Seller and identifies each Purchased Agreement pursuant to which the
Seller
has licensed such
Purchased Proprietary
Right, together with any additional
contracts that modify the Company's rights or obligations with respect to such
Purchased Proprietary Right.
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(c)
Marks, Trade Names and Domain Names. Section 3.11(c) of the
Disclosure
Schedule lists each
Mark and Trade Name that has been used by the Seller during
the last year in
connection with the
Product Line
(exclusive of any
Excluded
Assets), and lists
each application for
registration
that has been filed
and
each registration that
has been obtained by the Seller with respect to any such
Marks. Section 3.11(c) of the Disclosure Schedule lists each domain
name used by
the Seller during the
last year in connection with the Product Line.
All such
Marks, Trade Names and
domain names are included in the Purchased Proprietary
Rights. The Seller has
the exclusive right to use each such Mark and Trade Name
within the scope, and
in the geographic
area, of its present use and has the
right to continue to use each such domain name. To the Seller's
Knowledge:
(i)
no other Person is
using a similar Trade
Name to describe a
business that is
similar to the Product
Line; (ii) no other
Person is using a
similar Mark to
describe products or
services that are
similar to the
products and
services
relating to the Product Line; and (iii) no other Person has
registered
or is
currently using any
Mark or Trade Name in
a manner that
would preclude the
Seller from
using the Marks and Trade Names included in the Purchased
Proprietary Rights throughout the United States.
(d)
Patents. Section
3.11(d) of the Disclosure Schedule lists each Patent
included in the
Purchased Proprietary
Rights and lists each
country in which
each such issued
Patent is valid.
Each claim of each
such Patent is valid and
enforceable and each
such Patent provides
to the Seller a meaningful range of
exclusivity in the practice of the invention covered by such
Patent.
(e)
Copyrights.
Section 3.11(e) of the Disclosure Schedule lists each
Copyright registration
owned by the Seller and included in the Purchased
Proprietary Rights.
(f)
Trade Secrets. The
Seller has taken efforts that are reasonable under
the circumstances to prevent unauthorized disclosure to any other
Person of such
portions of the Seller's Trade Secrets included in the Purchased Proprietary
Rights that would enable such Person to compete with the Seller
within the scope
of or with respect
to the Product Line as now conducted and as presently
proposed to be conducted.
(g)
No Infringement. The
Seller has not interfered with, infringed upon or
misappropriated any Proprietary Right of any other Person in
connection with the
Seller's use or operation of the Purchased Assets, and the continued use or
operation of such
assets by the
Buyer, in the manner that such assets are
currently used
or operated or proposed to be used or operated, will not
interfere with,
infringe upon or
misappropriate any
Proprietary Right of
any
other Person.
To the Seller's Knowledge, no Person is interfering with,
infringing upon or
misappropriating any
Purchased Proprietary
Right. No claim
has been asserted against the Seller by any Person: (i) that such
Person has any
right, title or interest in or to any of the Copyrights,
Patents, Trade
Secrets
or Know-How included in the Purchased Proprietary Rights; (ii) that such
Person
has the right to use any of the Marks, Trade Names or domain names
included in
the Purchased
Proprietary Rights; (iii) to the effect that any past, present
or
projected act or
omission by the Seller
in connection
with the Product
Line
infringes any
Proprietary Right of
such Person; or (iv)
that challenges
the
Seller's right
to use any of the
Purchased Proprietary Rights. No facts or
circumstances exist
that, with or without
the passing of time or the giving of
notice or both, might reasonably serve as the basis for any such
claim.
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<PAGE>
3.12
Warranties and Products.
(a)
There are no defects
in the design or manufacturing of any of the
products distributed
or sold by the Seller in connection with the Product Line
(collectively, the
"Products") that would
adversely affect the
quality of any
such Product,
other than defects arising in the Ordinary Course of the
manufacturing process thereof, the exclusive remedy for which is a
return of the
defective product and for which adequate reserves are maintained on
the Seller's
accounting records.
The Products have been designed and manufactured in
compliance with
all regulatory, engineering, industrial and other codes
generally recognized
as being applicable thereto, and there are no statements,
citations or
decisions by any
Governmental
Authority or any
product-testing
laboratory that
indicate that any Product is unsafe or fails to meet any
standards promulgated
by such Governmental Authority or testing laboratory.
Except as set forth in Section 3.12 of the Disclosure Schedule, the Seller has
not recalled any
Product or received
notice of any defect in any Product, any
claim of personal
injury, death, or
property or economic damages in connection
with any Product, or
any claim for
injunctive relief in
connection
with any
Product. There are no
facts that are reasonably likely to give rise to a recall
of any Product or to give rise to a successful future claim of personal
injury,
death, or property or
economic damages,
or a claim for
injunctive
relief in
connection with any Product.
(b)
Section 3.12 of the Disclosure Schedule sets forth (i) a
description of
all warranties of the Seller to third Persons with respect to all
Products since
August 2, 2004, except warranties imposed by law; and (ii) the warranty
experience of the
Seller in connection
with the Product
Line since August
2,
2004 for an amount in excess of $10,000. The Seller has not given any
Product
warranties prior to August 2, 2004 that have not expired.
3.13
Suppliers. To the Seller's Knowledge, the relationships of the
Seller
with each of its suppliers in connection with the Product Line are good
working
relationships, and no supplier of the Seller in connection with the
Product Line
has cancelled or
otherwise terminated,
or threatened in writing to cancel
or
otherwise terminate,
its relationship with
the Seller, or has since January 1,
2006 (at the volition of the supplier) decreased materially, or threatened to
decrease or limit materially, its services, supplies or materials
to the Seller.
3.14
Customers. Section 3.14 of the Disclosure Schedule lists each
customer
or account
representing sales by the Seller in connection with the Product
Line
in excess of $100,000 in the 12 months ended December 31, 2006. Except as set
forth in Section 3.14 of the Disclosure Schedule, to the Seller's
Knowledge, (i)
no account or
relationship with any
such customer is being
terminated
or is
being considered for
termination
or nonrenewal;
and (ii) no such
customer is
considering any
material reduction
in its commercial relationship with the
Seller.
3.15
Brokers. No broker,
finder or other Person is or shall be entitled to
any brokerage
fees, commissions or finder's fees in connection with the
transactions
contemplated hereby
from the Seller by reason of any action taken
by the Seller with respect to this Agreement.
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3.16
Full Disclosure.
(a)
No statement that
relates to the Seller or the Product Line contained
in this Agreement, the
Disclosure Schedule or
any Seller Document
(including
each representation
and warranty in this Article III) contains or shall contain
any untrue
statement of a material fact or omits or shall omit to
state any
material fact
that was necessary to make such statements, in light of the
circumstances in which they were made, not misleading.
(b)
To the Seller's
Knowledge,
there are no facts that have specific
application to the
Seller or the Product Line (other than general economic or
industry conditions)
that materially
adversely affect or, as far as the Seller
can reasonably foresee, materially threaten, the Purchased Assets that has
not
been set forth in this Agreement or the Disclosure Schedule.
3.17
Securities Matters.
(a)
The Seller
is a corporation (i) with total assets in excess of
$5,000,000 and (ii) not formed for the specific purpose of
acquiring the Buyer's
Stock.
(b)
The Seller has been
furnished with all
materials that he or she has
requested relating to
the Buyer and the issuance of the Buyer's Stock, and the
Buyer has been afforded the opportunity to obtain any additional information
necessary to verify the accuracy of any such information. The Buyer
has answered
all inquiries
that the Seller has made of it concerning the Buyer and the
issuance of the Buyer's Stock.
(c)
The Seller is acquiring the Buyer's Stock for its own account and
not
for the account of any other Person. The Seller agrees that it will not
resell,
distribute or
otherwise dispose of
all or any part of the Buyer's Stock except
as permitted by law, including without limitation the Securities
Act of 1933, as
amended (the
"Securities Act"),
and the Securities Exchange Act of 1934, as
amended.
(d)
The Seller acknowledges that the offer and sale of the Buyer's
Stock is
being made pursuant to an exemption from the registration requirements of the
Securities Act,
and that, consequently, neither this agreement nor any
disclosure made by the Buyer to the Seller in connection herewith
has been filed
with or reviewed by the Securities and Exchange Commission (the "SEC"), any
securities exchange or
any state securities
regulatory agency, and neither the
SEC, any such exchange nor any state securities regulatory agency has approved
or disapproved of the Buyer's Stock or the issuance thereof.
(e)
The Seller understands
that the Buyer's Stock
has not been registered
under the Securities Act and therefore may not be sold or otherwise
transferred
unless registered
under the Securities Act or there is an
exemption from such
registration.
(f)
The Seller has such
knowledge and experience in financial and business
matters as to be able to evaluate the merits and risks of an
investment
in the
Buyer. The Seller
understands the nature
of an investment in the Buyer and the
risks associated with such an investment. The Seller understands that there is
no guarantee of any
financial return on
this investment in the
Buyer and that
the seller risks the complete loss of this investment.
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<PAGE>
(g)
The Seller is able
now, and was able at the time of
receipt of any
offer regarding the
Buyer, to bear the economic risks of this investment in the
Buyer, including the complete loss of its investment in the
Buyer.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES RELATING TO THE BUYER
The
Buyer represents and warrants to the Seller as follows:
4.1 Organization. The Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of North
Carolina.
4.2
Authority;
Enforceability. The Buyer has the absolute and unrestricted
legal right,
authority,
power and capacity to (i) execute and deliver this
Agreement and each
certificate,
document and
agreement to be
executed by the
Buyer in connection
herewith
(collectively, the
"Buyer Documents")
and (ii)
perform its obligations hereunder and thereunder. The execution and delivery of
this Agreement and the Buyer Documents and the consummation of the
transactions
contemplated hereby
and thereby have been
duly and validly
authorized by the
B
