ASSET PURCHASE AGREEMENT

Exhibit 10.1

ASSET PURCHASE AGREEMENT

BY AND AMONG

FABRIK, INC.,

FABRIK ACQUISITION CORP.

AND

SIMPLETECH, INC.

February 9, 2007

 

TABLE OF CONTENTS

 

 

 

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Attached hereto

 

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ASSET PURCHASE AGREEMENT

This Asset Purchase Agreement (the “ Agreement ”) is entered into as of February 9, 2007, by and among Fabrik, Inc., a Delaware corporation (“ Fabrik ”), Fabrik Acquisition Corp., a Delaware corporation (“ Buyer ”), and SimpleTech, Inc., a California corporation (“ Seller ”).

RECITALS

WHEREAS, Seller, among its other lines of business, is engaged in the business of designing, final assembling, selling, marketing and distributing consumer-oriented products based on Flash memory, DRAM and external storage technologies known as the Consumer Division of Seller (such business as so conducted by Seller as of the Closing Date, collectively the “ Division ”);

WHEREAS, Seller desires to sell and Buyer desires to purchase, pursuant to this Agreement, the Accounts Receivable, the Inventory, the name “SimpleTech” (and other names of the Division’s products included in Inventory). Additionally, Buyer will be acquiring certain assets and contracts related to the Division as mutually agreed between the Parties and provided for herein. Otherwise, Seller is retaining all other assets; provided , however , subject to mutual agreement of the Parties, Buyer may acquire certain other assets as may be specifically provided for hereto;

WHEREAS, it is understood and agreed that, except for the Acquired Assets, all other assets of Seller shall remain Seller’s and Seller shall be, and at all times remain, responsible for all Liabilities, whether arising before, at the time of, or after the Closing; except however, that Buyer, not Seller, shall be responsible for the Assumed Liabilities; and

WHEREAS, the Parties hereto agree that time is of the essence in this Transaction, and that each Party shall use good faith efforts in connection with effecting the transactions contemplated hereby upon the terms and conditions set forth in this Agreement.

AGREEMENT

Now, therefore, in consideration of the premises and the mutual promises herein made, and in consideration of the representations, warranties, and covenants herein contained, the Parties agree as follows.

ARTICLE I

DEFINITIONS

The definitions set forth in Schedule I attached hereto are incorporated herein and applicable to this Agreement.

 

ARTICLE II

BASIC TRANSACTION

2.1 Purchase and Sale of Assets . On and subject to the terms and conditions of this Agreement, Buyer hereby purchases from Seller, and Seller hereby sells, transfers, conveys, and delivers to Buyer, all right, title, and interest in and to the following assets, properties and rights, free and clear of all Encumbrances other than Permitted Encumbrances:

(a) the Inventory as listed on Schedule 2.1(a);

(b) Accounts Receivable as listed on Schedule 2.1(b);

(c) except as provided in Section 6.4 herein, all Contracts as listed on Schedule 2.1(c) (the “ Assumed Contracts ”);

(d) all Intellectual Property set forth on Sections 3.11(a)(i)-(iii) of the Disclosure Schedule;

(e) all goodwill to the extent related to, or otherwise arising out of the operation of the Division and/or the Acquired Assets, together with the right to represent to third parties that Buyer is the successor to or acquirer of the Division;

(f) all Ancillary Records;

(g) the tangible personal property, if any, listed on Schedule 2.1(g); and

(h) the pre-paid items listed on Schedule 2.1(h).

The assets, properties and rights to be sold, transferred, conveyed, assigned and delivered to Buyer pursuant to this Section 2.1 are sometimes hereinafter collectively referred to as the “Acquired Assets.”

2.2 Excluded Assets . It is understood and agreed that the Acquired Assets do not include any assets of Seller other than the Acquired Assets or as mutually agreed herein and all such other assets shall be excluded from this Agreement, including without limitation, the assets set forth on Schedule 2.2 (collectively, the “ Excluded Assets ”).

2.3 Assumption of Liabilities . On the terms and subject to the conditions of this Agreement, Buyer shall assume and become responsible solely for the Assumed Liabilities from and after the Closing. Buyer does not assume, agree to perform or discharge, agree to indemnify Seller against, or otherwise have any responsibility or obligation for or with respect to any Liabilities of Seller, except for the Assumed Liabilities (collectively, the “ Excluded Liabilities ”).

2.4 Purchase Price . In consideration for the sale of the Acquired Assets by Seller to Buyer, on the Closing Date, Buyer hereby (a) assumes the Assumed Liabilities and (b) delivers or shall cause to be delivered to Seller an amount equal to Forty Three Million Forty Three

 

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Thousand Eighty Three and 30/100 Dollars ($43,043,083.30) (the “ Purchase Price ”), payable by wire transfer of immediately available funds to an account designated by Seller. The foregoing Purchase Price shall be calculated in accordance with 2.5(a) and subject to adjustment as set forth in Section 2.5(b) below.

2.5 Purchase Price Calculation and Adjustment .

(a) Purchase Price . The Purchase Price payable as set forth above will be calculated as follows:

1. The Purchase Price shall be equal to the Net Working Capital calculated based on the Estimated Statement of Transferred Balance Sheet Accounts plus Ten Million Dollars ($10,000,000), as adjusted pursuant to Section 2.5(b).

2. Net Working Capital . Attached to this Agreement are (A) a statement setting forth the estimated balance sheet accounts of the Division as of 11:59 pm, Pacific Standard Time, on the day immediately prior to the Closing Date comprising the Net Working Capital to be acquired by Buyer hereby (the “ Estimated Statement of Transferred Balance Sheet Accounts ”) including schedules supporting each of the transferred balance sheet accounts (including details of estimated reserves, adjustments, and material sub-accounts) as Exhibit A-1 and (B) a statement which sets forth the calculation of the Net Working Capital based on the Estimated Statement of Transferred Balance Sheet Accounts (such calculation, the “ Estimated Closing Net Working Capital ”) as Exhibit A-2.

(b) Purchase Price Adjustment .

(i) Within thirty (30) days after the Closing Date, Seller shall, with the cooperation of Buyer, prepare and deliver to Buyer (A) an updated statement setting forth the estimated balance sheet accounts of the Division as of 11:59 pm, Pacific Standard Time, on the day immediately prior to the Closing Date (the “ Updated Statement of Transferred Balance Sheet Accounts ”) together with an updated calculation of the Net Working Capital based on the Updated Statement of Transferred Balance Sheet Accounts (the “ Updated Closing Net Working Capital ”), and (B) a summary of the changes between the Estimated Statement of Transferred Balance Sheet Accounts and the Updated Statement of Transferred Balance Sheet Accounts (including details of the changes in the reserves and the reasons for the adjustments); provided that notwithstanding anything herein to the contrary, only changes to the Accrued Expenses, reserves on the Accounts Receivable, reserves on the Inventory, and overhead capitalization may be made pursuant to the purchase price adjustment provisions of this Section 2.5(b).

(ii) Buyer may notify Seller in writing on or before the tenth (10th) business day following receipt of the Updated Statement of Transferred Balance Sheet Accounts and Updated Closing Net Working Capital or such longer period which terminates in no event later than five (5) business days after receipt of the information requested by Buyer pursuant to Section 2.5(v) below (the “ Adjustment Period ”) that Buyer (A) agrees with the Updated Statement of Transferred Balance Sheet Accounts and Updated Closing Net Working Capital (an “ Approval Notice ”) or (B) disagrees with the Updated Statement of Transferred

 

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Balance Sheet Accounts and Updated Closing Net Working Capital, identifying the items with which Buyer does not concur and the amount involved and an explanation of why Buyer does not concur (a “ Dispute Notice ”).

(iii) Upon receipt by Seller of a Dispute Notice, Seller and Buyer shall use good faith efforts during the thirty (30) day period following the date of receipt of a Dispute Notice (the “ Resolution Period ”) to resolve any differences they may have as to the calculations of the Updated Statement of Transferred Balance Sheet Accounts and Updated Closing Net Working Capital,. If Seller and Buyer cannot reach written agreement during the Resolution Period, within ten (10) business days thereafter, their disagreements (which shall be limited to only those amounts which are still in dispute at the end of such Resolution Period (the “ Remaining Disputed Amount ”)), may be submitted by any Party to Deloitte & Touche LLP (the “ Neutral Auditor ”), which firm shall conduct such additional review as is necessary to resolve the specific disagreements referred to it and shall consider the information provided by each Party. Based upon such review, the Neutral Auditor shall determine the Final Statement of Transferred Balance Sheet Accounts (as defined below) and Final Closing Net Working Capital (as defined below) (the “ Neutral Auditor Determination ”); provided, that in making such determination, the Neutral Auditor may only consider those items and amounts which Seller and Buyer have disputed within the time periods and on the terms specified above and must resolve the matter in accordance with the terms and conditions of this Agreement. Such determination shall be completed as promptly as practicable but in no event later than thirty (30) days following the submission of the dispute to the Neutral Auditor and shall be confirmed by the Neutral Auditor in writing to, and shall be final and binding on, Seller and Buyer for purposes of this Section 2.5(b). The fees and expenses of the Neutral Auditor shall be borne by Seller and Buyer in inverse proportion as they may prevail in the Neutral Auditor Determination relative to the dollar amount of the Remaining Disputed Amount, which proportionate allocations shall also be determined by the Neutral Auditor at the time the Neutral Auditor Determination is rendered on the merits of the matters submitted. If mutually agreed, in lieu of using Deloitte & Touche, LLP, the Parties may mutually agree to use a mediator or arbitrator (which person shall also be mutually agreed), to serve as the Neutral Auditor.

(iv) The statement of transferred balance sheet accounts and the calculation of the closing net working capital thereunder shall be final, binding and conclusive on the Parties (the “ Final Statement of Transferred Balance Sheet Accounts ” and “ Final Closing Net Working Capital ,” respectively) upon (as applicable, the “ Resolution Date ”): (A) the Buyer’s delivery of the Approval Notice with respect to the Updated Statement of Transferred Balance Sheet Accounts and the calculation of the Updated Closing Net Working Capital; (B) the failure of Buyer to deliver a Dispute Notice on or before the tenth (10th) business day following receipt of the documents described in Section 2.5(b)(ii) above with respect to the Updated Statement of Transferred Balance Sheet Accounts and the calculation of the Updated Closing Net Working Capital; or (C) the resolution of all disputes with respect to such Updated Statement of Transferred Balance Sheet Accounts and the calculation of the Updated Closing Net Working Capital pursuant to Section 2.5(b)(iii) above. Upon the Resolution Date, in the event there is a difference between the Estimated Closing Net Working Capital and the Final Closing Net Working Capital, the Purchase Price shall be adjusted as follows:

 

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(A) If the Final Closing Net Working Capital exceeds the Estimated Closing Net Working Capital, then the Purchase Price shall be increased by such dollar amount of difference, which amount shall be paid by Buyer to Seller in accordance with the provisions of Section 2.5(b)(v).

(B) If the Final Closing Net Working Capital is less than the Estimated Closing Net Working Capital, then the Purchase Price shall be decreased by such dollar amount of difference, which amount shall be paid by Seller to Buyer in accordance with the provisions of Section 2.5(b)(v).

Any adjustment to the Purchase Price pursuant to this Section 2.5(b) shall be made within five (5) business days after the Resolution Date by wire transfer of immediately available funds to an account or accounts designated by the recipient prior to the applicable payment date and shall not be a basis for an indemnification claim under this Agreement.

(v) Buyer and Seller agree to promptly provide each other all information reasonably requested in writing in connection with the matters contemplated by this Section 2.5(b).

(c) Balance Sheet and Working Capital Calculation Principles . For purposes of preparing the Statement of Transferred Balance Sheet Accounts, the following principles shall be applied: (i) each such statement shall be computed in accordance with GAAP applied on a consistent basis with Seller’s prior practices and as described on Section 3.6(b) of the Disclosure Schedule and (ii) all accruals, reserves, provisions and adjustments customarily made in year-end financial statements prepared in accordance with GAAP shall be made in each such statement.

(d) Determinations by Parties . Each Party agrees that all determinations and judgments made by it in connection with the matters addressed in this Section shall be made in good faith and in a commercially reasonable manner.

2.6 The Closing . The closing of the transactions contemplated by this Agreement (the “ Closing ”) shall occur simultaneously with the execution and delivery of this Agreement. The date on which the Closing occurs shall be referred to as the “ Closing Date ”.

2.7 Deliveries at the Closing . At the Closing, (i) Seller will deliver to Buyer the various certificates, instruments, and documents referred to below; (ii) Buyer will deliver to Seller the various certificates, instruments, and documents referred to below; (iii) Seller will execute and deliver to Buyer such other instruments of sale, transfer, conveyance, and assignment as Buyer and its counsel reasonably may request; and (iv) both Buyer and Seller will execute and deliver the Bill of Sale and Assignment attached hereto as Exhibit B , the Assumption Agreement attached hereto as Exhibit C , and the Transition Services Agreement. In addition, Seller shall have delivered to Buyer the following:

(a) title to the Acquired Assets free and clear of all Encumbrances other than Permitted Encumbrances;

(b) subject to the terms of the Transition Services Agreement, such reasonable information, as Buyer may require to obtain immediate and full possession and control of the

 

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Acquired Assets, and shall also make available to Buyer at their then existing locations the originals of all documents and instruments in Seller’s possession or control that are required to be transferred to Buyer by this Agreement;

(c) a certificate signed on behalf of the Seller by the Chief Executive Officer and the Chief Financial Officer of the Seller with respect to the representations, warranties and covenants of Seller;

(d) a non-foreign affidavit dated as of the Closing Date prepared in accordance with Treasury Regulations Section 1.1445-2 (the “ FIRPTA Affidavit ”); and

(e) Seller shall deliver to Buyer, as soon as reasonably practicable after the Closing Date, any Ancillary Records not delivered at Closing.

2.8 Allocation . Within 20 days after a final resolution of any adjustment to the Purchase Price pursuant to Section 2.5(b), Buyer shall provide Seller in writing (the “ Allocation Schedule ”) the proposed manner in which the sum of the Purchase Price (as adjusted pursuant to Section 2.5(b)) and the Assumed Liabilities will be allocated among the Acquired Assets, which allocation shall be made in accordance with Section 1060 of the Code. Promptly following the receipt of the Allocation Schedule, Seller shall have the right to object to such proposed allocations set forth in the Allocation Schedule, and if Seller objects, it shall notify Buyer of the disputed item (or items) and the basis for its objection and Buyer and Seller shall act in good faith to resolve such dispute for the 30 day period thereafter. If within such 30 day period, the Parties have not reached agreement regarding such allocations, the dispute shall be presented to an independent accounting firm mutually agreed upon by Seller and Buyer, whose determination shall be binding upon both Parties. The fees and expenses of the accounting firm shall be paid fifty percent by Seller and fifty percent by Buyer. Unless otherwise required by law, Seller, Buyer and their respective Affiliates shall (a) be bound by the final allocations determined pursuant to this Section 2.8 for purposes of determining Taxes, (b) prepare and file their Tax Returns on a basis consistent with such final allocations and (c) take no position inconsistent with such final allocations on any applicable Tax Return, in any proceeding before any Tax authority or otherwise. In the event that any of the allocations are disputed by any Tax authority, the Party receiving notice of the dispute shall promptly notify the other Party concerning resolution of the dispute.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF SELLER

Seller represents and warrants to Buyer that the statements contained in this Article III are correct and complete as of the date of this Agreement except as set forth in the disclosure schedule delivered by Seller to Buyer prior to or concurrently with the execution of this Agreement (the “ Disclosure Schedule ”). The Disclosure Schedules shall be arranged according to specific sections and subsections in this Article III.

3.1 Organization of Seller . To Seller’s Knowledge, Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of California, with

 

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full corporate power and authority to conduct its business as it is now being conducted and as proposed to be conducted, to own or use the properties and assets that it purports to own or use, and to perform all its obligations under the Assumed Contracts. To Seller’s Knowledge, Seller is duly qualified to do business as a foreign corporation and is in good standing under the laws of each state or other jurisdiction in which either the ownership or use of the properties owned or used by it, or the nature of the activities conducted by it, requires such qualification, except where the failure to be in good standing or so qualified would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Seller has conducted the business of the Division only through Seller and not through any of its Subsidiaries or through any other entity.

3.2 Authorization of Transaction . To Seller’s Knowledge, Seller has full power and authority (including full corporate power and authority) to execute and deliver this Agreement and the other Transaction Agreements and to perform its obligations hereunder and thereunder. The execution and delivery of this Agreement and the other Transaction Agreements by Seller and the consummation by Seller of the transactions contemplated hereby and thereby do not require any consent or approval of Seller’s shareholders. Without limiting the generality of the foregoing, the board of directors of Seller has duly authorized the execution, delivery, and performance of this Agreement and the other Transaction Agreements by Seller. This Agreement and the other Transaction Agreements constitute valid and legally binding obligations of Seller, enforceable in accordance with their terms and conditions subject to any applicable bankruptcy, insolvency, reorganization, moratorium or similar laws now or hereafter in effect relating to creditors’ rights generally or to general principles of equity, and upon the Closing, Buyer shall acquire all right, title and interest in the Acquired Assets free of any Encumbrances other than Permitted Encumbrances.

3.3 Noncontravention . To Seller’s Knowledge, neither the execution and the delivery of this Agreement or the other Transaction Agreements, nor the consummation of the transactions contemplated hereby or thereby (including the assignments and assumptions referred to in Article II above), will (i) result in a violation of any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which Seller is subject, (ii) violate any provision of the charter or bylaws of Seller or (iii) result in a conflict, breach or default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under, any agreement, Contract, lease, license, instrument, or other arrangement to which Seller is a party or by which it is bound or to which any of its assets are subject (or result in the imposition of any Encumbrance upon any of such assets other than Permitted Encumbrances), except, in the case of the foregoing clause (i), (ii) or (iii), for violations, conflicts, breaches or defaults that would not, individually or in the aggregate, result in a Material Adverse Effect. To Seller’s Knowledge, Seller does not need to give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order for the Parties to consummate the transactions contemplated by this Agreement or the other Transaction Agreements (including the assignments and assumptions referred to in Article II above).

3.4 Operation of the Division by Seller; Condition of Assets . To the Seller’s Knowledge, the Acquired Assets and the Services to be provided to Buyer by Seller pursuant to

 

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the Transition Services Agreement are sufficient to operate the business of the Division in a manner materially consistent with the operation of the Division during the six (6) months prior to the Closing Date. To Seller’s Knowledge, each Acquired Asset that is a tangible asset (excluding Intellectual Property) is free from material defects (patent and latent) and is suitable in all material respects for the purposes for which it presently is used and presently is proposed to be used, has been maintained in accordance with normal industry practice, and is in good operating condition and repair (subject to normal wear and tear). Seller owns and possesses all right, title, and interest in and to each Acquired Asset, free and clear of any Encumbrance other than Permitted Encumbrances. No Proceeding, charge, complaint, claim, or demand is pending, or to Seller’s Knowledge, threatened, which challenges the legality, validity, enforceability, use, or ownership of the Acquired Assets or increases (or, with respect to any threatened Proceeding, charge, complaint, claim, or demand, materially increases) Assumed Liabilities, and Seller has no Knowledge of any facts that would indicate a likelihood of same. To Seller’s Knowledge, and except as granted in the Ordinary Course of Business in connection with the sale of the Products, Seller has not agreed to indemnify any Person for or against any infringement or misappropriation, with respect to the Acquired Assets.

3.5 Broker’s Fees . To Seller’s Knowledge, Seller has no Liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the Transaction for which Buyer could become liable or obligated.

3.6 Financial Statements .

(a) Seller has delivered to Buyer its audited consolidated financial statements (consolidated balance sheet, consolidated statement of operations, consolidated statement of shareholders’ equity and consolidated statement of cash flows, including notes thereto) as of and for the fiscal years ended December 31, 2003, 2004 and 2005 (the “ Audited Financial Statements ”), and its unaudited financial statements (balance sheet and profit and loss statement) as of and for the twelve month period ended December 31, 2006 (the “ Unaudited Financial Statements ,” and together with the Audited Financial Statements, the “ Financial Statements ”). The Financial Statements have been prepared in accordance with GAAP applied on a consistent basis throughout the periods indicated and with each other, except that the Unaudited Financial Statements do not contain all footnotes and disclosures required by GAAP. The Financial Statements fairly present, in all material respects, the financial condition and operating results of Seller, inclusive of the Division, as of the dates, and for the periods, indicated therein.

(b) Seller has delivered to Buyer carved-out and proforma statements of operations and certain balance sheet items (as set forth in Section 3.6(b) of the Disclosure Schedule), along with supporting schedules, for the Division for the fiscal years ended December 31, 2003, 2004, 2005 and 2006 and for the quarters ending March 31, June 30, September 30, and December 31, 2006. Carved-out statements of operations (the “ Carved-out Divisional Financial Statements ”) were derived by specifically identifying certain revenues and expenses and using various carve-out methodologies to derive the remaining expenses as described thereon. Pro forma statements of operations and certain balance sheet items were also provided, which excluded certain recurring and non-recurring charges from the Carved-out Divisional Financial Statements as described thereon, and such pro forma statements of operations were prepared in good faith. The Carved-out Divisional Financial Statements used carve-out

 

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methodologies that were fair and reasonable, made in good faith, and were fully disclosed to Buyer and its independent accounting firm. The September 30, 2006 and December 31, 2006 Carved-out Divisional Financial Statements and certain balance sheet items at period end fairly present the financial condition and results of operations of the Division and, except as otherwise set forth on Section 3.6(b) of the Disclosure Schedule, were prepared in accordance with GAAP applied on a consistent basis, except that the Carved-out Divisional Financial Statements do not contain all footnotes and disclosures required by GAAP. The net revenues, cost of goods sold, and total gross profit set forth in the Carved-out Divisional Financial Statements agree with the segment disclosures in Seller’s prior SEC filings, have been presented to PWC, and PWC raised no material objections to such financial information.

3.7 Events Subsequent to Most Recent Fiscal Quarter End . Since September 30, 2006, Seller has conducted its business relating to the Division, the Acquired Assets and the Assumed Liabilities in the Ordinary Course of Business and, to Seller’s Knowledge, there has not been, occurred or arisen in respect of the Division, the Acquired Assets or the Assumed Liabilities any of the following, except in the Ordinary Course of Business or which, except as specifically set forth below, involve obligations (contingent or otherwise) of, or payments to Seller in excess of, $100,000:

(a) any loss of any material distributor (or other channel partner) or supplier relationship with Seller that is principally related to the Division or any material adverse change in such relationship;

(b) any injunction issued or other Legal Requirement prohibiting Seller from selling any Products, using the Acquired Assets or conducting the Division in any jurisdiction;

(c) any loss of any customer of the Division which generated sales in excess of Two Hundred Fifty Thousand Dollars ($250,000) during the twelve (12) months prior to December 31, 2006, or any notice by any such customer of its intention to terminate or materially change the terms of or the volume of purchases of Products from Seller;

(d) any adoption of or amendment to any Employee Benefit Plan of Seller or Employee Agreement, any payment or agreement to pay or provide any special bonus or special remuneration or fringe benefits in each case affecting any Person on Schedule 3.21(b) or independent contractor whose engagement by Seller is principally related to the Division, including the modification of any existing compensation or equity arrangements with such individuals, or any increase of salaries or wage scale;

(e) any material changes in Seller’s (i) customary method of operations for the Division including marketing, selling, licensing and pricing policies (including payment terms) and (ii) maintenance of premises, fixtures, furniture and equipment of the Division;

(f) any transaction by Seller materially affecting the Division that is not in the Ordinary Course of Business, including without limitation any payment, discharge or satisfaction of any claim or obligation of Seller or oral agreement providing for contractual terms that are different from those stated in the Assumed Contracts;

 

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(g) any material write-down of the value of any asset of Seller included in the Acquired Assets, excluding write-downs in disclosed reserves; or

(h) any agreement by Seller to do any of the foregoing (other than negotiations with Buyer and its representatives regarding the transactions contemplated hereby and by the other Transaction Agreements).

3.8 Legal Compliance . To Seller’s Knowledge, Seller has complied in all material respects with, is not in violation of, and has not received any notices of violation with respect to any applicable Legal Requirements in respect of the Assumed Liabilities, the Division or the use of the Acquired Assets in connection with its operation of the Division. In particular, in respect of the Division, to Seller’s Knowledge, Seller has complied in all material respects with all applicable Legal Requirements with respect to the design, development, promotion, sale, license, manufacture, import, export, use, distribution or provision of the Products. In respect of the Division, Seller has not received any communication during the past three (3) years from any Governmental Entity that alleges that it is or was not in compliance with any Legal Requirement, and Seller is not aware of any reasonable basis for such allegation.

3.9 Tax Matters . Seller has withheld and paid, in all material respects, all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, or other third party related to the Division. To Seller’s Knowledge, the Acquired Assets are not subject to any Encumbrance for Taxes other than Encumbrances for Taxes not yet due and payable.

3.10 Title to Properties; Condition; Transfer of Clear Title .

(a) Seller has good and valid title to all of the Acquired Assets, free and clear of all Encumbrances other than Permitted Encumbrances.

(b) There is no real property leased by Seller that is principally related to the Division and no lease agreements for real property will be included in the Assumed Contracts. There are no leased assets included in the Acquired Assets.

(c) Upon consummation of the Transaction, Seller will have sold, assigned, transferred and conveyed, or caused to be sold, assigned, transferred and conveyed, to Buyer all of the Acquired Assets, free and clear of all Encumbrances other than Permitted Encumbrances and Buyer will have good and valid title to all of such Acquired Assets.

3.11 Intellectual Property . To Seller’s Knowledge, Seller owns and possesses, or has the right to use pursuant to a valid and enforceable written license, sublicense, agreement, or permission, all Intellectual Property used in the operation of the Division as currently conducted. To Seller’s Knowledge, except as set forth in Section 3.11 of the Disclosure Schedule, the Intellectual Property included as part of the Acquired Assets constitutes all of the material Intellectual Property used in the operation of the Division as currently conducted. All Intellectual Property included as part of the Acquired Assets will be owned or available for use by Buyer on materially identical terms and conditions immediately subsequent to the Closing.

(a) Section 3.11(a) of the Disclosure Schedule accurately identifies:

 

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(i) in Section 3.11(a)(i) of the Disclosure Schedule: (x) each item of Registered Intellectual Property identified by name or title included in the Acquired Assets; (y) the jurisdiction in which such item of Registered Intellectual Property has been registered or filed and the applicable application, registration or serial number; and (z) any other Person that also has joint ownership interest in such item of Registered Intellectual Property and the nature of such ownership or interest;

(ii) in Section 3.11(a)(ii) of the Disclosure Schedule, any unregistered Trademarks consisting of or embodying the trademark “SimpleTech” or solely relating to the Products included in Inventory; and

(iii) in Section 3.11(a)(iii) of the Disclosure Schedule, all agreements with third parties relating to inbound licenses required to make, use or sell the Products included in Inventory.

(b) With respect to each of the Acquired Assets, to Seller’s Knowledge:

(i) all material Registered Intellectual Property is valid, subsisting and enforceable; and

(ii) the Intellectual Property and Inventory included within the Acquired Assets do not violate, infringe or misappropriate the intellectual property or other rights of any third party. It is understood and agreed that any breach of this Section 3.11(b)(ii) is subject to the specific limitation of Liability set forth in Section 7.2(b) below.

(c) With respect to the agreements identified in Section 3.11(a)(iii) of the Disclosure Schedule and which are to be Assumed Contracts, to Seller’s Knowledge:

(i) the agreement is legal, valid, binding, enforceable, in full force and effect and is not subject to the payment of royalties (except as set forth in Section 3.11(c)(i) of the Disclosure Schedule) or other fees to third parties;

(ii) the agreement will continue to be legal, valid, binding, enforceable, in full force and effect on materially identical terms immediately following the consummation of the transactions contemplated hereby (including the assignments and assumptions referred to in Article II above);

(iii) Seller and no other party to the agreement is in material breach or default, and no event has occurred which with notice or lapse of time would constitute a material breach or default or permit termination, modification, or acceleration thereunder;

(iv) Seller has not received any communication from a party to the agreement of such party’s intent to repudiate any provision thereof;

(v) Seller has not received any communication alleging that the Intellectual Property licensed to Seller under any such agreement is subject to any outstanding injunction, judgment, order, decree, ruling, or charge; and

 

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(vi) except as granted in the Ordinary Course of Business in connection with the sale of the Products, Seller has not granted any sublicense or similar right with respect to the agreement.

(d) To Seller’s Knowledge, Seller has not received in the last eighteen (18) months any written charge, complaint, claim, demand, or notice alleging that the Acquired Assets infringe, misappropriate, or violate (including any claim that Seller must license or refrain from using any Intellectual Property rights of any third party) the Intellectual Property rights of any third party, and Seller is not aware of any facts that would indicate a likelihood of the foregoing.

(e) To Seller’s Knowledge, Seller has taken commercially reasonable actions to maintain and protect the material Intellectual Property included within the Acquired Assets owned by Seller and will continue to maintain and protect such Intellectual Property owned by Seller prior to Closing. Without limiting the generality of the foregoing, to Seller’s Knowledge:

(i) Seller has secured from its employees or independent contractors who have created any portion of, or otherwise directly contributed to the development of, the Intellectual Property included within the Acquired Assets owned by Seller valid and enforceable written confidentiality agreements relating to, and assignments of, any work, invention, improvement or other rights relating to such Intellectual Property, and no such employee or independent contractor has retained or been granted back any rights in or to such work, invention, improvement or other rights.

(ii) no funding, facilities or personnel of any Governmental Entity were used, directly or indirectly, to develop or create, in whole or in part, any Intellectual Property included within the Acquired Assets;

(iii) Seller has taken commercially reasonable measures to maintain the confidentiality of all material proprietary and Confidential Information included in the Intellectual Property included within the Acquired Assets; and

(iv) except as set forth in Section 3.11(e)(iv) of the Disclosure Schedule, Seller is not now and has never been a member of any industry standards body or similar organization that obligates Seller to grant or offer to any other Person any license or right to any Intellectual Property included within the Acquired Assets.

3.12 Inventory . The Inventory consists of all of the components, manufactured and purchased parts, goods in process, and finished goods of the Division as of the Closing, all of which is merchantable and fit for the purpose for which it was procured or manufactured subject to reserves calculated in accordance with GAAP.

3.13 Contracts . Section 3.13 of the Disclosure Schedule sets forth a complete list of all material existing Contracts primarily relating to the Division, including:

(a) any Contract (or group of related Contracts) for the purchase or sale of commodities, components, supplies, products, or other personal property, or for the furnishing or receipt of services;

 

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(b) all forms of standard Contracts, terms of business, purchase orders and warranty agreements used by Seller in the conduct of the Division;

(c) any Contract concerning confidentiality, noncompetition or nonsolicitation;

(d) any Contract under which it has granted price protection provisions (for these purposes, also included is a description of the price protection);

(e) each Employee Agreement with respect to any Person on Schedule 3.21(b);

(f) any Contract under which the consequences of a default or termination could have a Material Adverse Effect;

(g) any other Contract of the Division (including those that would require the payment of commissions to third parties based on sales of the Products included in Inventory); and

(h) any Contract for the purchase or lease of real property.

Seller has delivered to Buyer a correct and complete copy of each written agreement (as amended to date) listed above. To Seller’s Knowledge, there are no material oral agreements or oral amendments to the forgoing written agreements, including, for example, with respect to returns or price protection. With respect to each such agreement that materially affects the Division, Acquired Assets or the Assumed Liabilities, to Seller’s Knowledge: (A) the agreement is legal, valid, binding, enforceable, and in full force and effect; (B) the agreement will continue to be legal, valid, binding, enforceable, and in full force and effect on terms identical in all material respects following the consummation of the transactions contemplated hereby (including the assignments and assumptions referred to in Article II above); (C) no party is in material breach or default, and no event has occurred which with notice or lapse of time would constitute a material breach or default, or permit termination, modification, or acceleration, under the agreement; and (D) no party has repudiated any provision of the agreement. All the Assumed Contracts have been entered into on an arms-length basis.

3.14 No Restrictions . To Seller’s Knowledge, none of the Acquired Assets is bound or affected by, any injunction, judgment, order, decree, ruling, charge, Contract, covenant or agreement (noncompete or otherwise) that restricts or prohibits, purports to restrict or prohibit, or reasonably could, following the Closing, restrict or prohibit Buyer from freely utilizing the Acquired Assets as currently utilized, or from competing anywhere in the world (including any Contract, covenant or agreement restricting the geographic area in which it may sell, license, sublicense, market, distribute or support any products or technology or provide services, or restricting the markets, customers or industries that it may address in operating the Acquired Assets).

3.15 Accounts Receivable . To Seller’s Knowledge, the Accounts Receivable reflect all accounts receivable relating to the Division as of the Closing Date. All invoices in Accounts Receivable that are reflected on the Estimated Statement of Transferred Balance Sheet Accounts

 

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represent valid obligations arising from sales actually made or services actually performed by Seller in the Ordinary Course of Business. To Seller’s Knowledge, such Accounts Receivable are collectible net of the respective reserves (as updated on the Final Statement of Transferred Balance Sheet Accounts) shown on the Estimated Statement of Transferred Balance Sheet Accounts (which reserves are calculated in accordance with GAAP). Section 3.15 of the Disclosure Schedule contains a complete and accurate list of all Accounts Receivable as of the date of the Estimated Statement of Transferred Balance Sheet Accounts, and which list sets forth the aging of each such Account Receivable.

3.16 Powers of Attorney . To Seller’s Knowledge, there are no outstanding powers of attorney executed on behalf of Seller with respect to any of the Acquired Assets or Assumed Liabilities.

3.17 Insurance . Section 3.17 of the Disclosure Schedule sets forth a complete and correct list of all insurance policies currently in force insuring against casualty to the Division or the assets comprising the Acquired Assets or Assumed Liabilities.

3.18 Litigation . To Seller’s Knowledge, there is no Proceeding of any nature pending or threatened by, against or involving Seller relating to the Division, the Acquired Assets or the Assumed Liabilities. To Seller’s Knowledge, there is no outstanding or threatened judgment, injunction, order, or similar decree binding upon Seller in respect of the Division, any of the Acquired Assets or any of the Assumed Liabilities.

3.19 Product Warranty . To Seller’s Knowledge, each Product has been and is in conformity with all applicable contractual commitments and all express and implied warranties recognized under the Uniform Commercial Code. Section 3.19 of the Disclosure Schedule includes copies of the standard terms and conditions of sale or lease for each of the Products included in the Inventory. Product warranty reserves are calculated in Seller’s sales returns reserve, which is calculated in accordance with GAAP.

3.20 Product Liability . To Seller’s Knowledge, Seller does not have any Liability (and there is no reasonable basis known to Seller for any present or future Proceeding, charge, complaint, claim, or demand against any of them giving rise to any Liability) arising out of any injury to individuals or property as a result of the ownership, possession, or use of any Product included in Inventory.

3.21 Employees .

(a) No employee of Seller on Section 3.21(b) of the Disclosure Schedule has been granted the right to continued employment by Seller. Seller, as of the date hereof, has no Knowledge that any officer, director, employee or consultant of Seller who has received an offer of employment from Buyer, intends to terminate his or her employment or other engagement with Seller, other than to accept employment with Buyer.

(b) Section 3.21(b) of the Disclosure Schedule sets forth an accurate, correct and complete list of all (i) employees of, and who work with, Seller in capacities primarily related to the Division, including each employee’s name, title or position, current annual salary or wage rate, bonuses, commissions, accrued vacation and other paid leave, years of service,

 

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and whether such employee performs services primarily for the Division or whether such employee performs services for both the Division and any other divisions of Seller, and (ii) individuals who are currently performing services for Seller primarily related to the Division who are classified as “consultants” or “independent contractors” or the like, and whether such individuals perform services primarily for the Division or whether such individual performs services for both the Division and any other divisions of Seller.

(c) To Seller’s Knowledge, there are no claims, disputes or controversies pending or threatened involving any current or former employee of Seller or group of employees of Seller primarily relating to the Division. Seller has not suffered or sustained any work stoppage and, to Seller’s Knowledge, no such work stoppage is threatened relating to the Division.

(d) To Seller’s Knowledge, Seller has complied in all material respects with all Legal Requirements related to the employment of the employees primarily providing services for the Division and Seller has no material Liability under any such Legal Requirements attributable to an event occurring prior to the date hereof related to the Division.

(e) Seller has no collective bargaining agreements with any of its employees on Schedule 3.21(b). There is no labor union organizing or election activity pending or, to Seller’s Knowledge, threatened with respect to Seller related to the Division.

3.22 Guaranties . To Seller’s Knowledge, as it relates to the Acquired Assets or Assumed Liabilities, Seller is not a guarantor nor is Seller otherwise liable for any Liability or obligation (including indebtedness) of any other Person.

3.23 Solvency . To Seller’s Knowledge, Seller is not entering into the Transaction with the intent to hinder, delay or defraud any Person to which it is, or may become, indebted. The Purchase Price is not less than the reasonably equivalent value of the Acquired Assets less the Assumed Liabilities. Seller’s assets, at a fair valuation, exceed its liabilities, and Seller is able, and will continue to be able after the Closing, to meet its debts as they mature and will not become insolvent as a result of the Transaction. After the Closing of the Transactions, Seller will have sufficient capital and property remaining to conduct the business in which it will thereafter be engaged.

3.24 No Other Agreement . Other than for sales of assets in the Ordinary Course of Business pursuant to the Assumed Contracts, to Seller’s Knowledge, Seller has not entered into any Contract with respect to the sale or other disposition of any of the Acquired Assets.

3.25 Customers and Suppliers .

(a) Section 3.25 of the Disclosure Schedule contains a list of all customers, including distributors, if applicable, of the Division for each of the two (2) most recent fiscal years (listed in descending order based on the total dollar amount of net sales), showing the total dollar amount of net sales to each such customer shown on Seller’s Books and Records during each such year.

 

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(b) To Seller’s Knowledge, since December 31, 2006 there has been no material adverse change in the custom and practice (including with respect to quantity and frequency) of the course of business between Seller and any of (i) the material customers of the Division that have generated sales in excess of $250,000 during the twelve (12) months prior to December 31, 2006 and (ii) the material suppliers of the Division from whom the Seller has purchased in excess of $250,000 in products or services during the twelve (12) months prior to December 31, 2006.

3.26 Certain Payments . To Seller’s Knowledge, neither Seller nor any Affiliate of Seller, any director, officer, agent, or employee of Seller or such Affiliate nor any other Person associated with or acting for or on behalf of Seller has in connection with the Division, directly or indirectly, made any contribution, gift, bribe, rebate, payoff, influence payment, kickback, or other payment to any Person, private or public, regardless of form, whether in money, property, or services (i) to obtain favorable treatment in securing business, (ii) to pay for favorable treatment for business secured, or (iii) to obtain special concessions or for special concessions already obtained, for or in respect of Seller, in each case, in violation of any Legal Requirement

3.27 Export Control Laws . To Seller’s Knowledge, Seller has conducted its export transactions, if any, at all times in material compliance with applicable Legal Requirements relating to export controls and regulations. Without limiting the foregoing:

(a) No export licenses or other approvals are required for Seller’s exports of Products included in Inventory;