Exhibit 10.1
ASSET PURCHASE AGREEMENT
BETWEEN
CULP, INC.
(the “Buyer”)
and
INTERNATIONAL TEXTILE GROUP, INC.
(the “Seller”)
Dated as of January 11, 2007
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS AND
CONSTRUCTION
ARTICLE II
PURCHASE, TERMS OF PAYMENT AND
CLOSING
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2.1
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Purchase and Sale of Assets
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2
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2.3
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No Assumption of Liabilities
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2
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2.4
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Purchase Price; Materials Credit
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4
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2.5
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Manner of Payment; Closing Date
Inventory
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4
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2.7
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Closing Obligations
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5
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE SELLER
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3.1
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Organization; Good Standing
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6
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3.2
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Authority; Enforceability
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6
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3.3
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Consents and Approvals; No Violation
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7
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3.5
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Absence of Certain Changes or Events
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8
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3.7
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Governmental Authorizations
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8
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3.8
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Compliance with Laws and Governmental
Authorizations
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8
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3.11
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Proprietary Rights
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9
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3.12
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Warranties and Products
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3.17
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Securities Matters
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12
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
RELATING TO THE BUYER
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4.2
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Authority; Enforceability
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4.3
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Consents and Approvals; No Violation
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ARTICLE V
COVENANTS AND
AGREEMENTS
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5.1
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Access to Information.
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5.3
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Operation of the Business of the
Seller
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15
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5.4
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Efforts to Satisfy Closing Conditions
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15
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5.9
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Securities Matters
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ARTICLE VI
CLOSING CONDITIONS
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6.2
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Buyer's Conditions
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6.3
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Seller's Conditions
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ARTICLE VII
INDEMNIFICATION
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7.1
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Survival; Knowledge
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7.2
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Seller's Agreement to Indemnify
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7.3
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Buyer's Agreement to Indemnify
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7.4
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Limitations on Seller's Indemnity
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7.5
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Limitations on Buyer's Indemnity
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7.6
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Procedure for Indemnification - Third-Party
Claims.
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7.8
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Indemnification Procedure - Direct
Claims.
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7.10
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Return of Buyer's Stock
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7.11
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Remedies Not Exclusive
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ARTICLE VIII
TERMINATION
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8.2
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Procedure and Effect of Termination
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ARTICLE IX
GENERAL PROVISIONS
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9.2
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Amendment and Modification
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9.3
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Waiver of Compliance; Consents
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9.6
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Assignment; No Third-Party Rights
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9.8
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Jurisdiction; Service of Process
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9.9
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Further Assurances; Records
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9.12
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Disclosure Schedule
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9.15
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Specific Performance
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EXHIBITS
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A
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Form of Registration Rights and
Shareholder Agreement
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C-1
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Form of Patent and Trademark
Assignment
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C-2
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Form of Copyright
Assignment
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D
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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
.
(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)
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Currency amounts referenced herein
are in U.S. Dollars.
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(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
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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:
(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);
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(vii)
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any employee grievance;
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(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;
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(xi)
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any credit facility or any security
interest related thereto;
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(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)
).
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2.5
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Manner of Payment; Closing Date
Inventory .
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(a)
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The Purchase Price shall be paid as
follows:
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(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
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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.
(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.
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2.7
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Closing Obligations
. At the Closing:
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(a)
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The Seller shall deliver to the
Buyer:
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(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
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(iv)
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the Registration Rights and
Shareholder Agreement.
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(b)
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The Buyer shall deliver to the
Seller:
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(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
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(iv)
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the Bill of Sale executed by the
Buyer.
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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
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Consents and Approvals; No
Violation .
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(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;
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(iii)
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result in the creation of any Lien
upon any of the Purchased Assets;
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(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
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made available by the Seller to the
Buyer in connection with the transactions contemplated hereby are
true and correct in all material respects.
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
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(b)
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agreement, whether oral or written,
by the Seller to do any of the foregoing.
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(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. The
Seller is, and at all times since August 2, 2004, has been, in
compliance with (i) all Legal Requirements
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applicable to the Seller in
connection with the Product Line and (ii) all Governmental
Authorizations of the Seller in connection with such
business.
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.
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3.11
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Proprietary Rights
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(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
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contracts that modify the
Company’s rights or obligations with respect to such
Purchased Proprietary Right .
(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
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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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3.12
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Warranties and
Products .
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(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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(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.
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3.17
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Securities Matters
.
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(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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(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 Buyer, and no
other proceedings on the part of the Buyer are necessary to
authorize this Agreement or any of the Buyer Documents or to
consummate the transactions contemplated hereby or thereby. This
Agreement has been duly and validly executed and delivered by the
Buyer and constitutes a legal, valid and binding obligation of the
Buyer, enforceable against it in accordance with its terms. Upon
execution and delivery by the Buyer of each Buyer Document, such
Buyer Document shall constitute a legal, valid and binding
obligation of the Buyer, in each case enforceable against it in
accordance with its terms.
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4.3
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Consents and Approvals; No
Violation .
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(a) Except
as disclosed in Section 4.3 of the Disclosure
Schedule, no Governmental Authorization is required in connection
with (i) the execution or delivery by the Buyer of this
Agreement or the Buyer Documents, or (ii) the performance of
the Buyer’s obligations under this Agreement or the Buyer
Documents.
(b) Neither
the execution and delivery of this Agreement and the Buyer
Documents by the Buyer nor the performance of the Buyer’s
obligations hereunder or thereunder shall (with or without notice
or lapse of time): (i) contravene, conflict with or result in
any violation of any provision of the articles of incorporation or
bylaws of the Buyer or any resolution adopted by the board of
directors or shareholders of the Buyer, or (ii) contravene,
conflict with, result in any violation of, or give any Governmental
Authority the right challenge any of the transaction contemplated
hereby or to exercise any remedy (including revocation, withdrawal,
suspension or modification) or obtain any relief under, any Legal
Requirement applicable to the Buyer.
(c) The
execution and delivery of this Agreement by the Buyer will not
conflict with or require any waiver in respect of any agreement
pursuant to which the Buyer has incurred indebtedness for borrowed
money, except for consents or waiver previously obtained by the
Buyer.
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4.4
Litigation . There are no Proceedings commenced against, or,
to the Buyer’s knowledge, threatened against the Buyer that
could affect its ability to consummate the transactions
contemplated by this Agreement. The Buyer is not subject to any
Order that could affect the enforceability of this
Agreement
