ASSET PURCHASE AGREEMENT

Exhibit 10.1

ASSET PURCHASE AGREEMENT

by and between

SECURITY WITH ADVANCED TECHNOLOGY, INC.,

PCP ACQUISITION, INC.,

PERFECT CIRCLE PROJECTILES, LLC

and

GARY E. GIBSON

Dated as of July 10, 2007

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EXHIBITS

SCHEDULES

ASSET PURCHASE AGREEMENT

ASSET PURCHASE AGREEMENT (“ Agreement ”) dated as of July 10, 2007, by and between Perfect Circle Projectiles, LLC, an Illinois limited liability company (“ Seller ”), Gary E. Gibson (“ Executive ”), PCP Acquisition, Inc., a Colorado corporation (“ Buyer ”), and Security With Advanced Technology, Inc., a Colorado corporation (“ SWAT ”).

R E C I T A L S:

WHEREAS, Seller conducts as part of its overall business (the “ Seller’s Business ”) the manufacture and sale of spherical-shaped projectiles for Tactical Uses and Animal Deterrent Uses (as such terms are defined on Schedule D ) (the “ Defined Business ”);

WHEREAS, SWAT and Buyer are in the business of developing, marketing and selling various products and services developed for the security and surveillance industry (the “ Buyer’s Business ”) and Buyer wishes to acquire the Defined Business; and

WHEREAS, Seller desires to sell and transfer to Buyer, and Buyer wishes to purchase and assume from Seller, the Assets (as such term is defined below), subject to the terms and conditions set forth in this Agreement.

NOW, THEREFORE, in consideration of the premises and mutual covenants contained in this Agreement and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to be legally bound hereby, agree as follows:

Article I DEFINITIONS

1.1           Definitions . For purposes of this Agreement, the following terms shall have the respective meanings set forth below:

“ Affiliate ” of any specified Person means (i) any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person and (ii) any 5% stockholder or member of such Person. For purposes of this definition, “control” when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the terms “controlling” and “controlled” have meanings correlative to the foregoing.

“ Agreement ” means this Agreement and includes all of the Disclosure Schedules, Exhibits and Schedules annexed hereto.

“ Animal Deterrent Use ” has the meaning set forth in Schedule D .

“ Assets ” has the meaning set forth in Section 2.1.

“ Assignment and Assumption Agreement ” means an Assignment and Assumption Agreement between Buyer and Seller in the form of Exhibit A hereto.

“ Bill of Sale ” means a Bill of Sale from Seller in the form of Exhibit B hereto.

“ Buyer Disclosure Schedules ” means the Disclosure Schedules of Buyer and SWAT attached hereto as Schedule A .

“ Buyer’s Business ” has the meaning set forth in the recitals to this Agreement.

“ Closing ” means the closing of the purchase and sale of the Assets as contemplated by this Agreement.

“ Closing Date ” has the meaning set forth in Section 3.3.

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

“ Competing Transaction ” means any sale, business combination or recapitalization involving the Defined Business or the Assets, or any acquisition or purchase of all or any portion of the assets of, or any material equity interest in, Seller, the Defined Business or the Assets or any other similar transaction with respect to the Defined Business or the Assets involving any Person or entity other than the Buyer or its Affiliates.

“ Consulting Agreement ” means a Consulting Agreement between Buyer and the Executive in the form attached hereto as Exhibit C .

“ Contract ” means any contract, lease, license, purchase order, sales order or other agreement or binding commitment, whether or not in written form.

“ Disclosure Schedules ” or “ Schedules ” means either the Buyer Disclosure Schedules, the Seller Disclosure Schedules, or both, as applicable.

“ Defined Business ” has the meaning set forth in the recitals to this Agreement.

“ Employee Plans ” means all employee benefit plans (as defined in Section 3(3) of ERISA) to which Seller is a party or is bound, with respect to which payments or contributions are required to be made by Seller, or in respect of which Seller may otherwise have any liability.

“ Encumbrance ” means any lien, charge, security interest, mortgage, deed of trust, pledge or other encumbrance of any nature whatsoever, excluding Seller’s lien or security interest in the Assets as provided for in the Royalty Agreement.

“ Environmental Laws ” means all federal, state and municipal statutes, regulations, common law and similar provisions having force or effect of law, all orders, permits, licenses and approvals with respect to environmental, public health and safety, occupational health and safety, product liability and transportation including without limitation all such standards of conduct or bases of obligations relating to the presence, use, production, generation, handling, transportation, treatment, storage, disposal, distribution, labeling, testing, processing, discharge, release, control or cleanup of any contaminant, waste, hazardous materials, substances, chemical

substances or mixtures, pesticides, toxic chemicals, petroleum products or byproducts, asbestos, polychlorinated biphenyls, noise or radiation.

“ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended.

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

“ Excluded Assets and Liabilities ” has the meaning set forth in Section 2.2.

“ Facilities Agreement ” means a Facilities Agreement between Buyer and Seller in the form attached hereto as Exhibit D .

“ GAAP ” means generally accepted accounting principles in effect in the United States consistently applied.

“ Indemnification Acknowledgment ” has the meaning set forth in Section 8.3(a)(ii).

“ Indemnitee ” has the meaning set forth in Section 8.3(a).

“ Indemnitor ” has the meaning set forth in Section 8.3(a).

“ Issued Shares ” has the meaning set forth in Section 3.1(a).

“ Knowledge ” means, when used in connection with the representations and warranties and covenants herein, the actual knowledge, after reasonable inquiry of the relevant facts and circumstances, of Buyer’s or Seller’s executive officers, as the case may be.

“ License Agreement ” means a Patent License Agreement in the form of Exhibit E hereto.

“ Licenses and Permits ” has the meaning set forth in Section 5.6.

“ Losses ” means, any liability, demand, claim, action, cause of action, cost, damage, deficiency, penalty, fine or other loss or expense, including all interest, penalties, reasonable attorneys’ fees and expenses and all amounts paid or incurred in connection with any action, demand, proceeding, investigation or claim. “Losses” shall not include any indirect, punitive or consequential damages, including, without limitation, lost profits.

“ Material Adverse Effect ” means a material adverse effect on either (i) the assets, operations, personnel, condition (financial or otherwise) or prospects of Buyer, the Defined Business or Seller, as applicable, taken as a whole, or (ii) Buyer’s or Seller’s (as applicable) ability to consummate the transactions contemplated hereby.

“ Material Contract ” means a Contract that is material to the Defined Business.

“ Notice of Claim ” has the meaning set forth in Section 8.3(a)(i).

“ Opinion of Buyer’s Counsel ” means an Opinion of Buyer’s Counsel in the form of Exhibit F hereto.

“ Opinion of Seller’s Counsel ” means an Opinion of Seller’s Counsel in the form of Exhibit G hereto.

“ Person ” means any individual, partnership, limited liability company, limited liability partnership corporation, association, joint stock company, trust, joint venture, unincorporated organization or governmental entity (or any department, agency or political subdivision thereof).

“ Products ” has the meaning set forth in Schedule D .

“ Proprietary Rights ” means, with respect to the Assets, worldwide industrial and intellectual property rights and all rights associated therewith, including all patents and applications therefor and all reissues, divisions, renewals, extensions, provisionals, continuations and continuations-in-part thereof, all inventions (whether patentable or not), invention disclosures, improvements, trade secrets, proprietary information, know how, technology, technical data, proprietary processes and formulae, algorithms, specifications and designs.

“ Registration Rights Agreement ” means a Registration Rights Agreement in the form of Exhibit H hereto.

“ Royalty Agreement ” means a Royalty Agreement in the form of Exhibit I hereto.

“ SEC ” means the United States Securities and Exchange Commission.

“ Seller ” has the meaning set forth in the preamble to this Agreement.

“ Seller Disclosure Schedules ” means the Disclosure Schedules of Seller attached hereto as Schedule B .

“ Seller Financial Statements ” means the unaudited balance sheets and statements of income and cash flows of Seller as of and for the fiscal year ended December 31, 2006 (including the footnotes thereto) and the unaudited balance sheets and related statements of income and cash flows for each month-end and quarterly period since December 31, 2006, attached hereto as Schedule C .

“ Seller Key Management Non-Compete Agreements ” mean the non-compete agreements in the form attached hereto as Exhibit J between the Seller Key Management Personnel and Buyer.

“ Seller Key Management Personnel ” means the following individuals: Gary Gibson, Michael Varacins, and Mary Gibson.

“ Seller’s Business ” has the meaning set forth in the preamble to this Agreement.

“ Seller’s Latest Balance Sheet ” means the unaudited balance sheet of Seller as of March 31, 2007 included in the Seller Financial Statements.

“ Spherical Projectile ” has the meaning set forth in Schedule D .

“ Software ” means, collectively, all of the software of the Defined Business in any form (including all software programs, objects, modules, routines, algorithms and code, in both source code and object code form), and includes: (a) all past and current versions and releases of Seller’s software products, all work in process and developed but unreleased code, and all versions or releases under development as of the Closing; (b) any other software owned by Seller or to which Seller otherwise has rights to that is, has been or is intended to be used by Seller in connection with the design, development, testing, maintenance or utilization of the software described in this paragraph; and (c) all derivative works of any of the software described in this paragraph.

“ Supply Agreement ” means a Supply Agreement between Buyer and Seller in the form of Exhibit K hereto.

“ SWAT Common Stock ” means SWAT’s no par value common stock.

“ SWAT Historical Financials ” means the audited balance sheets and statements of income and cash flows of SWATas of and for the fiscal year ended December 31, 2006 (including the footnotes thereto) filed with the SEC in connection with Buyer’s Form 10-KSB for the fiscal year ended December 31, 2006.

“ SWAT SEC Reports ” has the meaning set forth in Section 4.6.

“ SWAT’s Latest Balance Sheet ” means the audited balance sheet of SWAT as of December 31, 2006 included in the Historical Financials.

“ Tactical Use ” has the meaning set forth in Schedule D .

“ Tax ” means any federal, state, local or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, capital gain, intangible, environmental (pursuant to Section 59A of the Code or otherwise), custom duties, capital stock, franchise, employee’s income withholding, foreign withholding, social security (or its equivalent), unemployment, disability, real property, personal property, sales, use, transfer, value added, registration, alternative or add-on minimum, estimated or other tax, including any interest, penalties or additions to tax in respect of the foregoing, whether disputed or not, and any obligation to indemnify, assume or succeed to the liability of any other Person in respect of the foregoing, and the term “ Tax Liability ” shall mean any liability (whether known or unknown, whether absolute or contingent, whether liquidated or unliquidated, and whether due or to become due) with respect to Taxes.

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

“ Third Party Claim ” means a claim or demand made by any Person who is not a party hereto against an Indemnitee.

“ WARN ” has the meaning set forth in Section 5.12.

Article II PURCHASE AND SALE

2.1           Purchase and Sale of the Assets . Subject to Section 2.2, on the Closing Date, Seller shall sell, transfer, assign, convey and deliver to Buyer, and Buyer shall purchase and assume from Seller, the assets described on Schedule D hereto and all Proprietary Rights of the Defined Business (collectively, the “ Assets ”), free and clear of all Encumbrances.

2.2           Excluded Assets and Liabilities . Seller is not selling or transferring, and Buyer is not purchasing or assuming, any assets, liabilities or obligations of Seller other than the Assets (the “ Excluded Assets and Liabilities ”) and following the Closing, Buyer will not have any right, title, interest, obligation or responsibility with respect to the Excluded Assets and Liabilities. For the avoidance of doubt, (a) Buyer will not assume, and Seller shall retain, all obligations and liabilities of Seller and any of its Affiliates, including without limitation, all accounts payable, payroll accruals and withholdings, accrued expenses, capital and operating leases, Contracts, debts or mortgages, deferred income or revenue obligations, accrued or deferred income Tax or other Tax liabilities, or liabilities for any product returns or warranty claims arising from any products acquired by Buyer, (b) except as may be expressly agreed by Buyer, none of Seller’s employees will be hired, and none of Seller’s employment obligations will be assumed by Buyer, including, without limitation, such employee’s accrued vacation, sick time, personal time and health benefits (including COBRA), and (c) Buyer will not assume, and Seller shall retain, all rights to all assets other than the Assets, including cash, cash equivalents, accounts receivable, deposits and prepaid expenses.

2.3           Inventory Purchase Obligation . Buyer shall purchase within 30 days after the Closing Date at Seller’s cost all usable and undamaged inventory components owned by Seller and used or usable in the Defined Business.

Article III PURCHASE PRICE

3.1           Purchase Price . The purchase price payable to Seller for the Assets and in consideration for the agreements contained herein shall be paid at Closing in the following amounts and in the following manner:

(a)           Buyer shall cause SWAT to issue to Seller’s Members an aggregate of $1,000,000 of newly issued, restricted SWAT Common Stock (the “ Issued Shares ”), free and clear of all Encumbrances, in the following percentages:

and

(b)           Buyer shall deliver to Seller the amount of $1,000,000 in immediately available funds.

3.2           Valuation of the Issued Shares . For the purpose of determining the value of the Issued Shares as of Closing, such shares shall be valued at the average of (i) the average closing price of SWAT Common Stock for the 10 trading days ended May 2, 2007, and (ii) the average closing price of SWAT Common Stock for the 10 trading days ended July 6, 2007.

3.3           Closing . Subject to the terms of this Agreement, the Closing shall take place at 11:00 am, Denver, Colorado time, on a date to be agreed by Buyer and Seller, which shall be as soon as practicable following the satisfaction or written waiver of the conditions set forth in Article VII (the “ Closing Date ”), at the offices of Brownstein Hyatt Farber Schreck, 410 Seventeenth Street, Suite 2200, Denver, Colorado 80202, or at such other place as Buyer and Seller shall mutually agree.

3.4           Allocation of Purchase Price . The parties agree to negotiate in good faith an allocation of the Purchase Price among the Assets which shall be attached as Schedule E hereto (the “ Allocation ”). The parties to this Agreement expressly agree that the Allocation shall be used by them for all purposes including Tax, reimbursement and other purposes. Each party to this Agreement agrees that it will report the transaction completed pursuant to this Agreement in accordance with the Allocation, including any report made under Section 1060 of the Code, and that no such party will take a position inconsistent with the Allocation except with the prior written consent of the other parties hereto.

Article IV REPRESENTATIONS AND WARRANTIES OF BUYER AND SWAT

As a material inducement to Seller to enter into this Agreement and to consummate the transactions contemplated herein, Buyer and SWAT hereby, jointly and severally, represent and warrant to Seller that the statements made in this Article IV are true and correct, except as set forth in the Buyer Disclosure Schedules attached hereto as Schedule A . For purposes of this Article IV, the term shall mean each of Buyer and SWAT.

4.1           Organization, Qualification and Authority . Buyer is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Colorado. Buyer is in good standing and duly qualified to do business as a foreign corporation in all jurisdictions where the operation of its business or the ownership of its properties make such qualification necessary. Buyer has the requisite corporate power and authority to own, lease and operate its properties and assets as presently owned, leased and operated and to carry on its business as it is now being conducted. Buyer has the requisite corporate right, power and authority to execute, deliver and carry out the terms of this Agreement and all documents and agreements necessary to give effect to the provisions of this Agreement and to consummate the transactions contemplated hereby. The execution, delivery and consummation of this Agreement and all other agreements and documents executed in connection herewith by Buyer have been duly authorized by all necessary corporate action on the part of Buyer. Except for the approval of Buyer’s board of directors, no action, consent or approval on the part of Buyer or any other Person is necessary to authorize the execution, delivery and consummation of this Agreement and all other agreements and documents executed in connection herewith. This Agreement, and

all other agreements and documents executed in connection herewith by Buyer upon due execution and delivery thereof, shall constitute the valid binding obligations of Buyer, enforceable in accordance with their respective terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors’ rights generally and by general principles of equity.

4.2           No Violations . The execution and delivery of this Agreement and the performance by Buyer of its obligations hereunder (i) do not and will not conflict with or violate any provision of the articles of incorporation or similar organizational documents of Buyer, and (ii) do not and will not (a) conflict with or result in a breach of the terms, conditions or provisions of, (b) constitute a default under, (c) result in the creation of any Encumbrance upon the capital stock of Buyer pursuant to, (d) give any third party the right to modify, terminate or accelerate any obligation under, (e) result in a violation of, or (f) require any authorization, consent, approval, exemption or other action by or notice to any court or administrative, arbitration or governmental body or other third party pursuant to, any law, statute, rule or regulation or any Contract, order, judgment or decree to which Buyer is subject or by which any of its assets are bound.

4.3           Capitalization . The capitalization of Buyer is set forth on Schedule A .

4.4           Litigation . Buyer has not received notice of any violation of any law, rule, regulation, ordinance or order of any court or federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality which would impede or interfere with Buyer’s ability to enter into or consummate the transactions contemplated hereby. There are no lawsuits, proceedings, actions, arbitrations, governmental investigations, claims, inquiries or proceedings pending or, to Buyer’s Knowledge, threatened, involving Buyer that seeks to enjoin or obtain damages in respect of the consummation of the transactions contemplated by this Agreement or any action taken or to be taken by Buyer in connection with the consummation of the transactions contemplated hereby, and, to Buyer Knowledge, no reasonable basis exists for the bringing of any such claim.

4.5           Broker’s or Finder’s Fee . Buyer will not be liable for the payment of any fee to any finder, broker, consultant or similar person in connection with the transactions contemplated under this Agreement.

4.6           Buyer SEC Reports . Buyer has timely filed all reports with the SEC required to be filed by Buyer (“ Buyer SEC Reports ”). Each Buyer SEC Report complied as to form in all material respects with the requirements of applicable law on the date thereof.

4.7           Tax Returns; Taxes . (i) Buyer has filed and will timely file all federal, state and local Tax Returns and Tax reports required by such authorities to be filed and (ii) Buyer has paid all Taxes, assessments, governmental charges, penalties, interest and fines due or claimed to be due by any federal, state or local authority. There is no pending Tax examination or audit of, nor any action, suit, investigation or claim asserted or, to Buyer’s Knowledge, threatened, against Buyer by any federal, state or local authority; and Buyer has not been granted any extension of the limitation period applicable to any Tax claims.

4.8           No Omissions or Misstatements . None of the information included in this Agreement and schedules hereto, the Buyer SEC Reports or other documents furnished or to be furnished by Buyer, or any of their representatives, contains any untrue statement of a material fact or is misleading in any material respect or omits to state any material fact necessary in order to make any of the statements herein or therein not misleading in light of the circumstances in which they were made. Copies of all documents referred to in any schedule hereto have been delivered or made available to Seller and constitute true, correct and complete copies thereof and include all amendments, schedules, appendices, supplements or modifications thereto or waivers thereunder.

4.9           Financial Statements . Buyer does not have any material liability or obligations of any nature (absolute, accrued, contingent or otherwise) other than those that are either (i) reflected or appropriately reserved against in SWAT’s Latest Balance Sheet, (ii) not required by GAAP to be reflected or reserved against on SWAT’s Latest Balance Sheet or (iii) incurred in the ordinary course of business subsequent to the date of SWAT’s Latest Balance Sheet.

4.10        Interim Changes . Except as otherwise disclosed in any subsequent filings on Form 10-QSB or Form 8-K, since the date of Buyer’s most recent filing with the SEC on Form 10-KSB, there has been no:

(a)           change in the condition, financial or otherwise, of Buyer, which has, or could reasonably be expected to have a Material Adverse Effect;

(b)           loss, damage or destruction of or to any of Buyer’s assets, whether or not covered by insurance;

(c)           increase in the compensation payable by Buyer to its employees, directors, managers, independent contractors or agents other than in the ordinary course of business consistent with past practice, or any increase in, or institution of, any bonus, insurance, pension, profit sharing or other employee benefit plan or arrangements made to, for, or with the employees, directors, managers, or independent contractors of Buyer;

(d)           adjustment or write-off of accounts receivable other than in the ordinary course of business consistent with past practice or any change in the collection, payment or credit experience or practices of Buyer;

(e)           change in the Tax or cash basis accounting methods or practices employed by Buyer or change in depreciation or amortization policies;

(f)            strike, work stoppage or other labor dispute adversely affecting the business of Buyer;

(g)           termination, waiver or cancellation of any material rights or claims of Buyer under any Contract or otherwise, other than in the ordinary course of business consistent with past practice;

(h)           any incurrence of indebtedness for borrowed money other than in the ordinary course of Buyer’s business consistent with past practice;

(i)            any new Contract (or amendment to any existing Contract) obligating Buyer to purchase goods or services, any amendment or termination of any Material Contract or license relating to the business of Buyer or any waiver of material claims or rights of Buyer against third parties, in each case other than in the ordinary course of business consistent with past practice;

(j)            any Contract, arrangement or transaction between Buyer and any Affiliate of Buyer;

(k)           any other transaction not in the ordinary course of Buyer’s business and consistent with past practice of its business that, individually or in the aggregate, could have a Material Adverse Effect; or

(l)            any commitment with respect to any of the foregoing.

Article V REPRESENTATIONS AND WARRANTIES OF SELLER

As a material inducement to Buyer and SWAT to enter into this Agreement and to consummate the transactions contemplated hereunder, Seller and Gary Gibson, jointly and severally, hereby represent and warrant to Buyer that the statements made in this Article V are true and correct, except as set forth in the Seller Disclosure Schedules attached hereto as Schedule B .

5.1           Organization, Qualification and Authority . Seller is a limited liability company duly formed and validly existing under the laws of the State of Illinois. Seller is in good standing and is duly qualified to do business as a foreign corporation in all jurisdictions where the operation of its business or the ownership of its properties make such qualification necessary. Seller has the requisite corporate power and authority to own, lease and operate its facilities and assets as presently owned, leased and operated, and to carry on its business as it is now being conducted. Seller owns no capital stock, security, interest or other right, or any option or warrant convertible into the same, of any Person. Seller has the requisite right, power and authority to execute, deliver and carry out the terms of this Agreement and all documents and agreements necessary to give effect to the provisions of this Agreement and to consummate the transactions contemplated hereunder. The execution, delivery and consummation of this Agreement, and all other agreements and documents executed in connection herewith by Seller, have been duly authorized by all necessary action on the part of Seller. No other action, consent or approval on the part of Seller, or any other Person or entity is necessary to authorize Seller’s due and valid execution, delivery and consummation of this Agreement and all other agreements and documents executed in connection herewith. This Agreement and all other agreements and documents executed in connection herewith by Seller, upon due execution and delivery thereof, shall constitute the valid and binding obligations of Seller, enforceable in accordance with their respective terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors’ rights generally and by general principles of equity.

5.2           Capitalization . The capitalization of Seller is set forth on Schedule B , and are owned free and clear of Encumbrances. The outstanding equity interests of Seller has been

validly issued, fully paid and nonassessable. There are no other equity interests or any securities convertible into equity interests of Seller outstanding, and Seller has no commitment to issue or sell any such securities. No Person has any preemptive right or right of first refusal to purchase or subscribe for any equity interests of Seller.

5.3           No Violations . The execution and delivery of this Agreement and the performance by Seller of its obligations hereunder (i) do not and will not conflict with or violate any provision of its operating agreement, articles or certificate of formation or organization, or similar organizational documents, and (ii) do not and will not (a) conflict with or result in a breach of the terms, conditions or provisions of, (b) constitute a default under, (c) result in the creation of any Encumbrance upon any of the Seller equity interests or the Assets pursuant to, (d) give any third party the right to modify, terminate or accelerate any obligation under, (e) result in a violation of, or (f) require any authorization, consent, approval, exemption or other action by or notice to any court or administrative, arbitration or governmental body or other third party pursuant to, any law, statute, rule or regulation or any Material Contract, judgment or decree to which Seller is subject or by which any of the Assets are bound. V

5.4           Financial Statements . The Seller’s Historical Financials attached hereto as Schedule C fairly present the financial position of Seller as of the dates specified and the results of operations in all material respects of Seller for the periods covered thereby, and Seller has no material liability or obligations of any nature (absolute, accrued, contingent or otherwise) other than those that are either (i) reflected or appropriately reserved against on Seller’s Latest Balance Sheet, (ii) not required by GAAP to be reflected or reserved against on Seller’s Latest Balance Sheet, (iii) incurred in the ordinary course of the Seller’s Business subsequent to the date of Seller’s Latest Balance Sheet or (iv) set forth on Schedule B .

5.5           Interim Changes . Since the date of the Seller’s Latest Balance Sheet, there has been no:

(a)           change in the condition, financial or otherwise, of Seller which has, or could reasonably be expected to have a Material Adverse Effect;

(b)           loss, damage or destruction of or to any of the Assets, whether or not covered by insurance;

(c)           sale, lease, transfer or other disposition by Seller, or mortgages or pledges of or the imposition of any Encumbrance on, any portion of the Assets, other than in the ordinary course of business consistent with past practice;

(d)           adjustment or write-off of accounts receivable, other than in the ordinary course of business consistent with past practice, or any change in the collection, payment or credit experience or practices of Seller;

(e)           change in the Tax or cash basis accounting methods or practices employed by either of Seller or change in depreciation or amortization policies;

(f)            issuance or sale by Seller, or any Contract entered into by Seller for the issuance or sale, of any equity interest of Seller or securities convertible into or exchangeable for equity interest of Seller;

(g)           payment by Seller of any dividend, distribution (except in the ordinary course of business) or extraordinary or unusual disbursement or expenditure;

(h)           merger, consolidation or similar transaction involving Seller;

(i)            strike, work stoppage or other labor dispute adversely affecting the Defined Business;

(j)            termination, waiver or cancellation of any material rights or claims of Seller, under any Contract or otherwise;

(k)           any incurrence of indebtedness for borrowed money other than in the ordinary course of the Defined Business consistent with past practice;

(l)            any new Contract (or amendment to any existing Contract) obligating Seller to purchase goods or services, other than in the ordinary course of business consistent with past practice, any amendment or termination of any Material Contract or license relating to the Defined Business or any waiver of material claims or rights of Seller against third parties;

(m)          any agreement, arrangement or transaction between Seller and any Affiliate of Seller;

(n)           any other transaction not in the ordinary course of the Defined Business and consistent with past practice of the Defined Business that, individually or in the aggregate, could have a Material Adverse Effect; or

(o)           any commitment with respect to any of the foregoing.

5.6           Licenses and Permits .

(a)           Seller has all material local, state and federal licenses, permits, registrations, certificates, contracts, consents, accreditations and approvals material to the Defined Business (collectively, the “ Licenses and Permits ”) necessary to occupy, operate and conduct its business as now conducted, and there does not exist any waivers or exemptions relating thereto. There is no material default on the part of Seller, nor, to Seller’s Knowledge, any other party under any of the Licenses and Permits. To Seller’s Knowledge, there exist no grounds for revocation, suspension or limitation of any of the Licenses or Permits. No notices have been received by Seller with respect to any threatened, pending, or possible revocation, termination, suspension or limitation of the Licenses and Permits.

(b)           Each employee of Seller has all Licenses and Permits required for each such employee to perform such employees’ designated functions and duties for Seller in connection with conducting its business. There is no default under, nor, to Seller’s Knowledge,

does there exist any grounds for revocation, suspension or limitation of, any such Licenses and Permits.

5.7           Real Property . The Defined Business includes no real property, whether owned or leased..

5.8           Assets . Schedule D contains a list of the Assets. Except as set forth on Schedule B , Seller has good and marketable title to the Assets, free and clear of all Encumbrances, except as provided for in the Royalty Agreement. The Assets are sufficient to conduct the Defined Business as presently conducted. No assets utilized in connection with the Defined Business are owned by or in the possession of any Person other than Seller. The machinery, equipment and other tangible assets of Seller have been maintained in good working condition in accordance with customary industry practice (normal wear and tear excepted) and are sufficient for the conduct of the Defined Business. The Assets are suitable for their intended uses. The Assets reflected on Schedule D constitute all of the assets, properties and other rights used in the conduct of the Defined Business, except as otherwise indicated on Schedule D .

5.9           Contracts . Schedule B sets forth a complete and correct list of all Contracts relating to the Defined Business to which Seller is a party or to which the Assets are subject (excluding customary purchase orders in the ordinary course of business) and which:

(a)           involve payment of more than $10,000 on behalf of Seller, other than payments for customary services or trade payables in the ordinary course of the Defined Business;

(b)           which will require Seller (or Buyer) to purchase or provide goods or services following the Closing Date;

(c)           are a franchise, distributor or similar agreement;

(d)           evidence or provide for any indebtedness for borrowed money or any Encumbrance on any of the Assets;

(e)           guarantee the performance, liabilities or obligations of any other entity, which restrict in any material respect the ability of Seller to conduct any business activities, which involve any related party, including Seller or any of its Affiliates;

(f)            provide for noncompetition agreements;

(g)           relate to the hiring or leasing of employees, which are not in the ordinary course of the Defined Business;

(h)           relate to independent contractor services being provided to Seller;

(i)           are subject to termination or modification by any third party as a result of the transactions contemplated by this Agreement; or

(j)           are otherwise material to the Defined Business.

Seller is not in material breach of any Contract set forth on Schedule B , nor, to Seller’s Knowledge, is any third party in material breach of any such Contract. True and complete copies of all Contracts or forms of such Contracts set forth on Schedule B have previously been delivered or made available to Buyer.

5.10           Environmental and Safety Matters .

(i)            to Seller’s knowledge, Seller is and has been in material compliance at all times with all applicable Environmental Laws and has received no notice, report or information regarding any liabilities (whether accrued, absolute, contingent, unliquidated or otherwise), or any corrective, investigatory or remedial obligations, arising under applicable Environmental Laws with respect to the past or present operations or properties of the Defined Business;

(ii)           to Seller’s Knowledge, Seller has obtained, and is and has been in material compliance at all times with all terms and conditions of, all Licenses and Permits pursuant to Environmental Laws for the occupation of its premises and the conduct of its operations;

(iii)         to Seller’s Knowledge, Seller has filed, and is and has been in material compliance at all times with, all disclosures, reporting, and notifications required pursuant to Environmental Laws for the occupation of its premises and the conduct of the Defined Business;

(iv)          Seller has not received notice that any of the following exists at any of Seller’s properties (other than de minimis amounts of cleaning supplies) in violation of applicable Environmental Laws: hazardous or toxic materials, substances, pollutants, contaminants or waste; polychlorinated biphenyl containing materials or equipment;

(v)           to Seller’s Knowledge, the transactions contemplated by this Agreement do not impose any obligations under Environmental Laws for site investigation or cleanup or notification to or consent of any government agencies or third parties that has the right to enforce Environmental Laws;

(vi)          Seller has not received any notice that there are facts, events or conditions relating to the past or present properties or operations of the Defined Business which will (x) prevent, hinder or limit continued compliance with applicable Environmental Laws, (y) give rise to any corrective, investigatory or remedial obligations on the part of Buyer pursuant to applicable Environmental Laws, or (z) give rise to any liabilities on the part of Buyer (whether accrued, absolute, contingent, unliquidated or otherwise) pursuant to applicable Environmental Laws, including without limitation those liabilities relating to onsite or offsite hazardous substance releases, personal injury, property damage or natural resources damage; and

(vii)        Seller has not assumed nor, to Seller’s Knowledge, succeeded (by operation of law or otherwise), to any liabilities or obligations of any third party under Environmental Laws for which Buyer will have any liability following the Closing Date.

(viii)       Seller has delivered or made available to Buyer true and correct copies of all environmental studies conducted by Seller.

5.11          Litigation . Seller has not received notice of any violation of any law, rule, regulation, ordinance or order of any court or federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality (including, without limitation, legislation and regulations applicable to environmental protection, civil rights, public health and safety and occupational health) since January 1, 2002. There are no lawsuits, proceedings, actions, arbitrations, governmental investigations, claims, inquiries or proceedings pending or, to Seller’s Knowledge