ASSET PURCHASE AGREEMENT

EXHIBIT 10.2

ASSET PURCHASE AGREEMENT

BY AND BETWEEN

ORTHODYNE ELECTRONICS CORPORATION

as Seller

AND

KULICKE AND SOFFA INDUSTRIES, INC.

DATED AS OF JULY 31, 2008

ASSET PURCHASE AGREEMENT

THIS ASSET PURCHASE AGREEMENT (this “ Agreement ”), dated as of July 31, 2008, is made by and between Orthodyne Electronics Corporation, a California corporation (“ Seller ”), and Kulicke and Soffa Industries, Inc., a Pennsylvania corporation (“ Buyer ”). Seller and Buyer are sometimes referred to herein collectively as the “ Parties ” and individually as a “ Party .”

RECITALS

WHEREAS, Seller is engaged in the business of designing, manufacturing and selling equipment for the semiconductor and microelectronics industries (the “ Business ”); and

WHEREAS, subject to the terms and conditions set forth in this Agreement, Seller desires to sell to Buyer, and Buyer desires to purchase from Seller, substantially all of the assets that are related to or used in connection with the Business, and in connection therewith, Buyer desires to assume certain obligations and liabilities associated with the assets so purchased.

AGREEMENT

NOW, THEREFORE, in consideration of the foregoing premises, the mutual representations, warranties, covenants and agreements hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto agree as follows:

ARTICLE I

DEFINITIONS

Section 1.1. Definitions . In addition to the terms defined above and elsewhere in this Agreement, the following terms used in this Agreement shall be construed to have the meanings set forth or referenced below:

“ Accountant ” means McGladrey & Pullen LLP.

“ Accounts Receivable ” means all accounts receivable, notes receivable and other rights to payment of any Seller Entity to the extent related to the Business, together with any unpaid interest or fees accrued thereon or other amounts due with respect thereto, and any claim, remedy or other right related to any of the foregoing.

“ Acquisition Proposal ” shall have the meaning ascribed to it in Section 7.5 .

“ Affiliate ” of any Person means any other Person controlling, controlled by, or under common control with such particular Person, where “control” means the possession, directly or indirectly, of the power to direct the management and policies of a Person whether through the ownership of voting securities, contract, or otherwise.

“ Affiliate Transaction ” shall have the meaning ascribed to it in Section 5.20 .

“ Agreement ” shall have the meaning ascribed to it in the preamble.

“ Alternative Upfront Consideration ” means 19,572,954 Shares.

“ Ancillary Agreements ” means the Assignment and Assumption Agreement, Bill of Sale, Earnout Agreement, Employment Agreements, Escrow Agreement, Real Property Lease Agreement, Subsidiary Asset Purchase Agreements and each other document and instrument required to be delivered in connection with the transactions contemplated by this Agreement, including the Shareholder’s Agreements in the event the Wire Business Transaction is not consummated on or before the Target Closing Date.

“ Antitrust Division ” shall mean the Antitrust Division of the United States Department of Justice.

“ Antitrust Law ” and “ Antitrust Laws ” shall have the meaning ascribed to them in Section 7.4(a) .

“ Assigned Contracts ” shall have the meaning ascribed to it in Section 2.1(a) .

“ Assignment and Assumption Agreement ” shall have the meaning ascribed to it in Section 8.1(g) .

“ Assumed Liabilities ” shall have the meaning ascribed to it in Section 2.3 .

“ Bill of Sale ” shall have the meaning ascribed to it in Section 8.1(f) .

“ Business ” shall have the meaning ascribed to it in the preamble.

“ Business Day ” means each day other than a Saturday, Sunday or other day on which commercial banks in California are authorized or required by Law to close.

“ Buyer ” shall have the meaning ascribed to it in the preamble.

“ Buyer Common Stock ” means the common stock of Buyer, no par value.

“ Buyer Fairness Opinion ” shall have the meaning ascribed to it in Section 6.15 .

“ Buyer Form 8-K ” shall have the meaning ascribed to it in Section 7.18 .

“ Buyer Indemnified Party ” shall have the meaning ascribed to it in Section 10.2(a) .

“ Buyer Plan ” shall have the meaning ascribed to it in Section 7.7(a) .

“ Buyer Representatives ” shall have the meaning ascribed to it in Section 7.3(a) .

“ Buyer Requisite Regulatory Approvals ” shall have the meaning ascribed to it in Section 6.3(a) .

“ Buyer Shareholder Approval ” means the approval of the issuance of the Alternative Upfront Consideration by Buyer to Seller by the affirmative vote of the holders of a majority of the shares of Buyer Common Stock present and voting (in person or by proxy) at the Buyer Shareholders’ Meeting (as defined in Section 7.10 ), to the extent required.

 

2

“ Buyer Shareholders ” shall mean the holders of the shares of Buyer Common Stock.

“ Buyer Shareholders’ Meeting ” shall have the meaning ascribed to it in Section 7.10 .

“ Buyer Threshold ” shall have the meaning ascribed to it in Section 10.3(b) .

“ Certified Working Capital ” shall have the meaning ascribed to it in Section 3.3(b)(iii) .

“ Closing ” shall have the meaning ascribed to it in Section 4.1 .

“ Closing Date ” shall have the meaning ascribed to it in Section 4.1 .

“ Closing Working Capital ” shall have the meaning ascribed to it in Section 3.3(b)(i) .

“ Closing Working Capital Statement ” shall have the meaning ascribed to it in Section 3.3(b)(i) .

“ Code ” means the Internal Revenue Code of 1986, as amended, and any reference to any particular Code section shall be interpreted to include any revision of or successor to that section regardless of how numbered or classified.

“ Competing Business ” shall have the meaning ascribed to it in Section 7.6(a) .

“ Confidential Information ” shall have the meaning ascribed to it in Section 7.6(c) .

“ Consent ” means any consent, approval, authorization, clearance, exemption, waiver, ratification or similar affirmation by, or filing with or notification to, any Governmental Entity or other Person.

“ Contract ” means any written or oral agreement, arrangement, commitment, contract, indenture, instrument, lease, promise, undertaking or other obligation of any kind or character, or other obligation that is binding on any Person or its properties or business.

“ Customs and International Trade Laws ” means any Law concerning the importation of merchandise, the export or re-export of products (including technology and services), the terms and conduct of international transactions, and making or receiving international payments, including the Tariff Act of 1930, as amended, and other laws and programs administered or enforced by the United States Customs Service and its successor agencies, the Export Administration Act of 1979, as amended, the Export Administration Regulations, the International Emergency Economic Powers Act, as amended, any other export controls administered by the U.S. Department of Commerce or the U.S. Department of Treasury, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, executive orders of the President regarding embargoes and restrictions on transactions with designated entities (including countries, terrorists, organizations and individuals), the embargoes and restrictions administered by the United States Office of Foreign Assets Control, the Money Laundering Control Act of 1986, as amended, prohibitions or restrictions on the importation of merchandise made with the use of slave or child labor, the Foreign Corrupt Practices Act, as amended, the antiboycott regulations administered by the United States Department of Commerce, the antiboycott regulations administered by the United States Department of Treasury, legislation and regulations of the United States and other countries implementing the North American Free Trade Agreement, antidumping and countervailing duty

 

3

Laws, and Laws adopted by the Governmental Entities of other countries concerning the ability of United States Persons to own businesses or conduct business in those countries, restrictions by other countries on holding foreign currency or repatriating funds, or otherwise relating to the same subject matter as the United States statutes and regulations described above.

“ Designated Shareholders ” shall mean Gregg S. Kelly, William S. Larkin, Jason M. Livingston and the Orthodyne Electronics Corporation Employee Stock Ownership Plan.

“ Direct Claim ” shall have the meaning ascribed to it in Section 10.4(a) .

“ Disclosure Schedule ” shall have the meaning ascribed to it in the preamble to Article V.

“ Earnout Agreement ” means that certain Earnout Agreement by and between Seller and Buyer dated as of the date hereof.

“ Employment Agreements ” shall have the meaning ascribed to it in Section 8.1(k) .

“ Environmental and Safety Laws ” shall have the meaning ascribed to it in Section 5.21 .

“ ERISA ” shall have the meaning ascribed to it in Section 5.18(a) .

“ Escrow Account ” shall have the meaning ascribed to it in Section 3.2 .

“ Escrow Agent ” shall have the meaning ascribed to it in Section 3.2 .

“ Escrow Agreement ” shall have the meaning ascribed to it in Section 3.2 .

“ Escrow Amount ” shall have the meaning ascribed to it in Section 3.2 .

“ Estimated Closing Date Working Capital ” shall have the meaning ascribed to it in Section 3.3(a)(i) .

“ Estimated Closing Date Working Capital Statement ” shall have the meaning ascribed to it in Section 3.3(a)(i) .

“ Exchange Act ” shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

“ Excluded Assets ” shall have the meaning ascribed to it in Section 2.2 .

“ Financial Statements ” shall have the meaning ascribed to it in Section 5.7(a) .

“ FTC ” means the United States Federal Trade Commission.

“ GAAP ” means generally accepted accounting principles of the United States, consistently applied.

“ Governmental Entity ” shall mean any United States or foreign court, administrative or regulatory agency or commission or other United States or foreign, federal, state, county or local governmental authority, instrumentality, agency or commission.

 

4

“ HSR Act ” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder.

“ Indebtedness ” of any Person means, without duplication: (a) indebtedness for borrowed money or for the deferred purchase price of property or services in respect of which such Person is liable, contingently or otherwise, as obligor or otherwise (other than trade payables incurred in the Ordinary Course of Business), including accrued interest and prepayment penalties and any commitment by which such Person assures a creditor against loss, including contingent reimbursement obligations with respect to letters of credit; (b) indebtedness guaranteed in any manner by such Person, including a guarantee in the form of an agreement to repurchase or reimburse; and (c) obligations under capitalized leases in respect of which such Person is liable, contingently or otherwise, as obligor, guarantor or otherwise, or in respect of which obligations such Person assures a creditor against loss.

“ Indemnification Cap ” means 15% of the aggregate value of the Upfront Consideration as of the Closing.

“ Indemnification Threshold ” means 1% of the aggregate value of the Upfront Consideration as of the Closing.

“ Indemnified Party ” shall have the meaning ascribed to it in Section 10.4(a) .

“ Indemnifying Party ” shall have the meaning ascribed to it in Section 10.4(a) .

“ Insider ” means any officer, director, executive employee, shareholder, partner or Affiliate, as applicable, of any party at issue or any spouse or descendant (whether natural or adopted) of any such individual or any entity in which any of the foregoing persons owns a 5% or greater direct or indirect beneficial interest.

“ Inventory ” means all inventories of the Seller Entities, wherever located, including all finished goods, work in process, raw materials, spare parts and all other materials and supplies to be used or consumed by such Seller Entities in the production of finished goods for the Business.

“ Knowledge ” means, with respect to a Person, the knowledge of such Person (and if such Person is an entity, this means the knowledge of the individuals serving as officers, managers, directors and executive employees of such Person with substantial responsibility for the relevant fact or matter). For purposes of the foregoing, the “Knowledge” of Seller shall be deemed to be the knowledge of the Named Individuals, Shannon Biggs, Kerri Brechbiel, Jim Pisa, Brian Eid, Vartan Babayan or Val Taruntaev. For purposes of this Agreement, an individual will be deemed to have “Knowledge” of a particular fact or other matter if a prudent individual could be expected to discover or otherwise become aware of that fact or matter in the course of conducting a reasonably comprehensive investigation regarding the accuracy of any representation or warranty contained in this Agreement.

“ Latest Balance Sheet ” shall have the meaning ascribed to it in Section 5.7(a) .

“ Law ” means any federal, state, local or foreign law, statute, ordinance, rule, regulation, order, judgment or decree, administrative or judicial decision, and any other executive or legislative proclamation.

 

5

“ Leased Real Property ” means all land, building, fixtures or other real property in which any Seller Entity has a leasehold, subleasehold, license, concession or other real property right or interest under the Real Property Leases.

“ Leasehold Improvements ” means all buildings, fixtures and other improvements which are owned by any Seller Entity and located on Leased Real Property, regardless of whether such improvements are subject to reversion to the landlord or other third party upon the expiration or termination of the Real Property Lease for such Leased Real Property.

“ Liability ” means, with respect to any Person, any liability or obligation of any kind, whether known or unknown, absolute or contingent, asserted or unasserted, accrued or unaccrued, disputed or undisputed, liquidated or unliquidated, secured or unsecured, joint or several, due or to become due, vested or unvested, executory, determined or determinable and regardless of whether the same is required to be disclosed on the financial statements of such Person.

“ Lien ” means, with respect to any asset or other property interest, any conditional sale agreement, default of title, easement, encroachment, encumbrance, hypothecation, infringement, lien, mortgage, option, pledge, reservation, restriction, security interest, title retention or other security arrangement in respect of such asset or property interest.

“ Litigation ” means any suit, action, arbitration, cause of action, claim, complaint, criminal prosecution, investigation, demand letter, governmental or other administrative proceeding, whether at law or at equity.

“ Losses ” means any and all actual losses, liabilities, costs, penalties, fines and expenses (including reasonable attorneys’ fees and costs of investigation).

“ Material Adverse Effect ” means, with respect to any Person, any change, effect, or circumstance that (a) has or would reasonably be expected to have a material adverse effect on the business, operations, prospects, assets, results of operations or condition (financial or other) of such Person and its Subsidiaries, taken as a whole, other than such changes, effects or circumstances demonstrably attributable to: (i) economic conditions generally in the United States, or conditions in general in the industry and markets in which such Person conducts its businesses, except to the extent such changes materially and disproportionately affect, in an adverse manner, such Person and its Subsidiaries considered as a whole, (ii) any change in the laws or regulations generally applicable to the industry or markets in which such Person and its Subsidiaries operate, except to the extent such changes materially and disproportionately affect, in an adverse manner, such Person and its Subsidiaries considered as a whole, or (iii) the entry into and consummation of this Agreement or any of the Ancillary Agreements; or (b) prevents Seller or Buyer, as applicable, from consummating the transactions contemplated hereby in spite of the use of all commercially reasonable efforts to consummate such transactions.

“ Named Individuals ” shall mean Gregg S. Kelly, William S. Larkin and Jason M. Livingston.

“ NASDAQ ” shall mean The Nasdaq Global Market.

“ NASDAQ Notification Form ” shall have the meaning ascribed to it in Section 7.12 .

“ Nonpartisan Accountants ” shall have the meaning ascribed to it in Section 3.3(b)(ii) .

 

6

“ Notice of Objection ” shall have the meaning ascribed to it in Section 3.3(b)(ii) .

“ Observer ” shall have the meaning ascribed to it in Section 7.17 .

“ Order ” means any administrative decision or award, decree, injunction, judgment, order, quasi-judicial decision or award, ruling, or writ of any federal, state, local or foreign or other court, arbitrator, mediator, tribunal, administrative agency or authority.

“ Ordinary Course of Business ” means actions that are consistent in nature, scope and magnitude with the past practices of such Party, taken in the ordinary course of the normal day-to-day operations of such Party.

“ OSHA ” shall have the meaning ascribed to it in Section 5.25(b) .

“ Owned Real Property ” shall have the meaning ascribed to it in Section 5.5(a) .

“ Party ” shall have the meaning ascribed to it in the preamble.

“ Permit ” means all permits, licenses, franchises, approvals, certificates, consents, waivers, concessions, exemptions, orders, registrations, notices or other authorizations of any Governmental Entity necessary for the ownership, lease and/or operation of the Purchased Assets and the carrying on of the Business as currently conducted by Seller.

“ Permitted Liens ” means (i) Liens for Taxes or governmental assessments, charges or claims not yet due or which are being contested in good faith, and for which adequate reserves or other appropriate provisions have been established in financial statements in accordance with GAAP, (ii) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, materialmen and other similar Persons and other Liens imposed by applicable Law incurred in the Ordinary Course of Business which are either for sums not yet delinquent, or being contested in good faith, (iii) zoning, entitlement, building and other land use and similar Laws or regulations imposed by any Governmental Entity having jurisdiction over such parcel which are not violated by the current use and operation thereof; and (iv) liens or encumbrances placed by a landlord or other third party with respect to any Leased Real Property.

“ Person ” means any individual, partnership, joint venture, limited liability company, corporation, trust, unincorporated organization, group, or government or other department or agency thereof, or other entity.

“ Property Tax Returns ” shall have the meaning ascribed to it in Section 7.8(a) .

“ Proprietary Rights ” means all registered and unregistered intellectual property rights, including, without limitation, all of the following items along with all income, royalties, damages, equitable relief and payments due or payable prior to or at the Closing or thereafter (including, without limitation, damages, equitable relief and payments for past, present or future infringements or misappropriations thereof, the right to sue and recover for past infringements or misappropriations thereof and any and all corresponding rights that, now or hereafter, may be secured throughout the world): (i) patents, patent applications, patent disclosures and inventions (whether or not patentable and whether or not reduced to practice) and any reissue, continuation, continuation-in-part, division, revision, extension or reexamination thereof; (ii) trademarks, service marks, industrial designs, trade dress, internet domain names and web sites, logos, topographies, trade names and corporate names,

 

7

including the name “Orthodyne,” together with all goodwill associated therewith; (iii) registered and unregistered copyrights, copyrightable works and mask works; (iv) all registrations, applications and renewals for any of the foregoing; (v) trade secrets and confidential or proprietary information (including, without limitation, ideas, formulae, compositions, know-how, manufacturing and production processes and techniques, research and development information, drawings, specifications, designs, plans, proposals, technical data, financial, business and marketing plans, and customer and supplier lists and related information); (vi) computer software and software systems (including, without limitation, data, databases and related documentation) owned and/or used by a party other than commercially available “off-the-shelf” software with a license fee of less than $20,000 in the aggregate for all copies of a particular software application; (vii) licenses or other agreements to or from third parties regarding the foregoing; and (viii) all copies and tangible embodiments of the foregoing (in whatever form or medium).

“ Proprietary Rights Assignment ” shall have the meaning ascribed to it in Section 8.1(h) .

“ Purchase Price ” means the Upfront Consideration, subject to adjustment pursuant to Section 3.3 hereof.

“ Purchased Assets ” shall have the meaning ascribed to it in Section 2.1 .

“ Real Property Leases ” means all leases, subleases, licenses, concessions and other agreements (written or oral), including, without limitation, all amendments, extensions, renewals, guaranties and other agreements with respect thereto, together with all security deposits thereunder, for the use and occupancy of any real property.

“ Real Property Lease Agreement ” shall have the meaning ascribed to it in Section 8.1(l) .

“ Registration Statement ” shall have the meaning ascribed to it in Section 7.11 .

“ Retained Liabilities ” shall have the meaning ascribed to it in Section 2.4 .

“ S-3 Registration Statement ” shall have the meaning ascribed to it in Section 7.11(b) .

“ S-4 Registration Statement ” shall have the meaning ascribed to it in Section 7.11(a) .

“ SEC ” shall mean the U.S. Securities and Exchange Commission.

“ SEC Reports ” shall have the meaning ascribed to it in Section 6.9 .

“ Securities Act ” shall mean the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

“ Seller Entity ” shall mean any of Seller or its Subsidiaries, individually; and “ Seller Entities ” shall mean Seller and its Subsidiaries, collectively, or any of them individually, as the context requires.

“ Seller Indemnified Party ” shall have the meaning ascribed to it in Section 10.3(a) .

“ Seller Plans ” shall have the meaning ascribed to it in Section 5.18(a) .

 

8

“ Seller Requisite Regulatory Approvals ” shall have the meaning ascribed to it in Section 5.3(a) .

“ Seller SEC Financial Statements ” shall have the meaning ascribed to it in Section 7.13 .

“ Seller Shareholders ” shall mean the holders of the shares of capital stock of Seller.

“ Shareholder’s Agreement ” shall have the meaning ascribed to it in Section 8.1(m)(ii) .

“ Shares ” means the shares of Buyer Common Stock to be issued to Seller pursuant to the terms of this Agreement.

“ Straddle Period ” shall have the meaning ascribed to it in Section 7.8(a) .

“ Subsidiary ” means, with respect to any Person, any corporation, limited liability company or other entity as to which more than fifty percent (50%) of the outstanding securities having ordinary voting rights or power (and excluding securities having voting rights only upon the occurrence of a contingency unless and until such contingency occurs and such rights may be exercised) is owned or controlled, directly or indirectly, by such Person and/or by one or more of such Person’s direct or indirect Subsidiaries.

“ Subsidiary Asset Purchase Agreements ” has the meaning ascribed to it in Section 8.1(n) .

“ Survival Limitation ” has the meaning ascribed to it in Section 10.1 .

“ Target Closing Date ” means October 31, 2008, or such other date as mutually agreed to in writing by the Parties.

“ Target Working Capital ” shall have the meaning ascribed to it in Section 3.3(a)(ii)(A) .

“ Tax ” or “ Taxes ” means all taxes, including all federal, state, local, foreign income, gross receipts, ad valorem, value-added, excise, real or personal property (tangible or intangible), sales, use, transfer, capital stock, franchise, goods and services, registration, payroll/wage withholding, employment, unemployment, disability, insurance, social security (or similar), business license, business organization, environmental, workers compensation, profits, license, lease, service, service use, severance, stamp, occupation, premium, windfall profits, customs, duties, escheat obligation, alternative, add-on minimum, estimated and other taxes imposed by any Governmental Entity, and any interest, penalties, assessments or additions to tax resulting from, attributable to or incurred in connection with any tax or any contest or dispute thereof, and including any Liability for the Taxes of another person.

“ Tax Return ” means returns, declarations, reports, claims for refund, information returns or other documents (including any related or supporting schedules, statements, or information) filed or required to be filed in connection with the determination, assessment, or collection of Taxes of any Person or the administration of any laws, regulations, or administrative requirements relating to any Taxes.

“ Third Party ” shall have the meaning ascribed to it in Section 10.4(c)(i) .

“ Third Party Claim ” shall have the meaning ascribed to it in Section 10.4(a) .

 

9

“ Transaction Taxes ” shall have the meaning ascribed to it in Section 7.8(b) .

“ Transferred Employees ” shall have the meaning ascribed to it in Section 7.7(a) .

“ Treasury Regulations ” means the United States Treasury Regulations promulgated pursuant to the Code.

“ Upfront Consideration ” means 7,117,438 Shares plus $80 million in cash; provided, however, that if the Wire Business Transaction is not consummated on or before the Target Closing Date, the Upfront Consideration shall be the Alternative Upfront Consideration.

“ WARN Act ” means the Worker Adjustment and Retraining Notification Act of 1988, as amended.

“ Wire Business Transaction ” means the proposed disposition by Buyer of its business of manufacturing and marketing gold, aluminum and copper wire used in the wire bonding process for semiconductor and microelectronic devices.

“Working Capital” shall have the meaning ascribed to it in Section 3.3(a)(i) .

ARTICLE II

SALE AND PURCHASE OF ASSETS

Section 2.1. Purchased Assets . Subject to the terms and conditions of this Agreement, Buyer shall purchase from Seller, and Seller shall sell, transfer and assign to Buyer, on the Closing Date (as hereinafter defined), all of Seller’s assets related to or used in connection with the operation of the Business, other than the Excluded Assets (as hereinafter defined), (collectively referred to herein as the “ Purchased Assets ”), free and clear of any and all Liens, other than Permitted Liens, which shall include the following:

(a) All of Seller’s rights and obligations under the Contracts identified on Schedule 2.1(a) attached hereto (collectively the “ Assigned Contracts ”);

(b) All of Seller’s Accounts Receivable that are identified on Schedule 2.1(b) attached hereto, and all schedules, records and other documentation related to such Accounts Receivable, including, without limitation, all license fees and maintenance fees owing or to become owing under Assigned Contracts, advance payments, claims for refunds and deposits and other prepaid items existing on the Closing Date, and all notes, chattel paper or other documents or instruments evidencing the payment obligations of the account or note debtors;

(c) All tangible personal property owned by Seller, including the tangible personal property identified in the fixed asset schedule attached hereto as Schedule 2.1(c) ;

(d) With the exception of confidential personnel records regarding employees (except as may be waived in writing by any affected employee), all of Seller’s records related to or used in connection with the operation of the Business or pertaining to the Purchased Assets;

(e) To the extent transferable, the Permits required under any Laws applicable to or affecting the Business, all of which are set forth on Schedule 2.1(e) ;

 

10

(f) All Real Property Leases, Leased Real Property and Leasehold Improvements identified in the real property schedule attached hereto as Schedule 2.1(f) ;

(g) All Inventory of Seller;

(h) All Proprietary Rights of Seller;

(i) All insurance benefits, including rights and proceeds, arising from or relating to the Purchased Assets or the Assumed Liabilities prior to the Closing Date;

(j) All claims of Seller against third parties relating to the Purchased Assets, whether choate or inchoate, known or unknown, contingent or non-contingent; and

(k) The goodwill associated with the Purchased Assets and the Business.

Section 2.2. Excluded Assets . Notwithstanding anything contained in Section 2.1 to the contrary, Schedule 2.2 contains a list of all of the assets relating to, and used in connection with, the operation of the Business that shall not be included in the Purchased Assets being sold to Buyer (the “ Excluded Assets ”), all of which shall be retained by Seller.

Section 2.3. Assumed Liabilities . Buyer hereby agrees to assume, pay, perform, fulfill and discharge only the following Liabilities (collectively, the “ Assumed Liabilities ”):

(a) All Liabilities set forth in Schedule 2.3 attached hereto;

(b) All Liabilities first incurred after the Closing Date under or arising out of the Assigned Contracts; and

(c) All Liabilities incurred in the operation of the Business or the ownership or use of the Purchased Assets after the Closing Date (excluding any amounts due or earned prior to the Closing Date such as commissions on account of sales made prior to the Closing Date).

Section 2.4. Retained Liabilities . Buyer shall not assume any Liabilities of Seller that are not Assumed Liabilities, including any Liabilities relating to the Excluded Assets (collectively, the “ Retained Liabilities ”). Seller shall retain all Retained Liabilities and Buyer shall have no obligation to pay, perform, fulfill or discharge any Retained Liabilities. Seller shall pay, perform, and discharge as and when due all of the Retained Liabilities.

Section 2.5. Buyer Designees . Buyer, in its sole and unreviewable discretion, may designate one or more of its Affiliates to receive and hold some or all of the Purchased Assets and to assume some or all of the Assumed Liabilities. Notwithstanding anything to the contrary contained in this Section 2.5 , Buyer shall remain liable for any and all of Buyer’s obligations arising under, or in connection with, this Agreement.

ARTICLE III

CONSIDERATION

Section 3.1. Purchase Price . In consideration of the transfer of the Purchased Assets and the assumption of the Assumed Liabilities, at the Closing, Buyer shall pay, or cause to be paid, to

 

11

Seller eighty-five percent (85%) of the Upfront Consideration, which amount shall be paid in the amount of cash and the amount of Buyer Common Stock that is in the same proportion as the proportion of cash to Buyer Common Stock in the Upfront Consideration; provided, that, if the Wire Business Transaction is not consummated on or before the Target Closing Date, such amount shall be paid entirely in Buyer Common Stock. The Purchase Price shall be adjusted as set forth in Section 3.3 . As additional consideration for the Purchased Assets, Buyer shall enter into the Earnout Agreement referenced in Sections 8.1(o) and 8.2(k) and shall make the Earnout Payments (as defined therein).

Section 3.2. Escrow Amount .

(a) At the Closing, Buyer shall deposit a portion of the Purchase Price equal to fifteen percent (15%) of the aggregate amount of the Upfront Consideration as of the Closing (the “ Escrow Amount ”) into an escrow account with a third party escrow agent to be mutually agreed upon by the Parties (the “ Escrow Agent ”) pursuant to the terms of an Escrow Agreement, substantially in the form attached hereto as Exhibit A (the “ Escrow Agreement ”). Buyer shall deposit the Escrow Amount in cash and Shares that is in the same proportion as the proportion of cash to Buyer Common Stock in the Upfront Consideration; provided, that, if the Wire Business Transaction is not consummated on or before the Target Closing Date, such deposit shall be made entirely in Buyer Common Stock. The Escrow Amount shall be held in escrow by the Escrow Agent for a period of eighteen (18) months following the Closing as security for the indemnification obligations of Seller pursuant to Section 10.2(a) herein and distributed by the Escrow Agent in accordance with the terms and conditions of the Escrow Agreement.

(b) Within ten (10) calendar days after the termination of the Escrow Account, Buyer shall pay to Seller an amount of cash equal to the product of (i) the total Tax Distributions (as defined in the Escrow Agreement) and (ii) the fraction where the numerator is the total amount of distributions made to Seller (or its assigns) out of the Escrow Account, and the denominator is the sum of (A) the total amount of distributions made to Seller (or its assigns) out of the Escrow Account and (B) the total amount of Claims (as defined in the Escrow Agreement) paid to Buyer out of the Escrow Account.

Section 3.3. Working Capital Adjustment .

(a) Closing Working Capital Adjustment.

(i) Three Business Days prior to the Closing Date, Seller shall deliver to Buyer, a written statement setting forth Seller’s good faith estimate (after consultation with Buyer) of the current assets of Seller that are included in the Purchased Assets (which, for the sake of clarity, does not include cash, cash equivalents, marketable securities and other investments, including those available for sale and held to maturity), less the current liabilities that are included in the Assumed Liabilities, in each case as determined in accordance with GAAP but subject to those GAAP exceptions set forth on Exhibit 3.3(a) (the “ Working Capital ”) as of 12:01 a.m. on the Closing Date (the “ Estimated Closing Date Working Capital Statement “), which statement shall include a detailed computation of the estimated Working Capital (the “ Estimated Closing Date Working Capital ”) and shall be prepared in good faith in accordance with GAAP but subject to those GAAP exceptions set forth on Exhibit 3.3(a) .

(ii) If the Estimated Closing Date Working Capital is:

(A) greater than $37,000,000 (the “ Target Working Capital ”), the Upfront Consideration shall be increased by a dollar amount equal to the difference between the Estimated Closing Date Working Capital and the Target Working Capital, with such increase being in the form of additional cash; or

 

12

(B) less than the Target Working Capital, the Upfront Consideration shall be decreased by a dollar amount equal to the difference between the Target Working Capital and the Estimated Closing Date Working Capital, with such decrease being in the form of less cash; or

(C) equal to the Target Working Capital, the Closing Payment shall not be adjusted in respect of the Estimated Closing Date Working Capital.

(b) Initial Post-Closing Working Capital Adjustment.

(i) Not later than 60 days after the Closing Date, Buyer shall prepare and deliver, or cause to be prepared and delivered, to Seller a statement (the “ Closing Working Capital Statement “), setting forth any proposed adjustments to the Estimated Working Capital (the “ Closing Working Capital “). The Closing Working Capital Statement shall include a computation of the Closing Working Capital.

(ii) Unless Seller, within 30 days after receipt of the Closing Working Capital Statement, gives Buyer a notice objecting thereto and specifying in reasonable detail the basis for such objection and the amount in dispute (“ Notice of Objection “), such Closing Working Capital Statement shall be considered accepted and binding upon Seller and Buyer. If within 30 days after the receipt of the Closing Working Capital Statement, Seller gives a Notice of Objection to Buyer, Seller and Buyer shall negotiate in good faith with a view to resolving any differences. If such negotiations fail to resolve all disputed items within 15 days after Notice of Objection was first given by Seller, the remaining disputed items shall be submitted to Ernst & Young LLP (the “ Nonpartisan Accountants ”) for final resolution. After affording Buyer and its representatives and Seller and its representatives the opportunity to present their positions as to the disputed items (which opportunity shall not extend for more than 30 days), the Nonpartisan Accountants shall resolve all disputed items in writing. The Parties shall instruct the Nonpartisan Accountants to limit their review and determination to only those items in dispute and the Nonpartisan Accountants shall be authorized to choose either Buyer’s or Seller’s positions based solely on such presentations or determine that the disputed items are between such positions. Such resolution shall be final and binding upon the Parties and shall be reflected in any necessary revisions to the Closing Working Capital Statement. The fees, costs and expenses of the Nonpartisan Accountants in connection with any such determination shall be apportioned between Seller and Buyer based upon the inverse proportion of the disputed amounts resolved in favor of such Party (i.e., so that the prevailing Party bears a lesser amount of such fees, costs and expenses). Otherwise, Seller and Buyer shall each pay its costs in connection with this Section 3.3 , including the fees and expenses of their respective attorneys and accountants, if any.

(iii) If the Closing Working Capital as conclusively determined as provided in Section 3.3(b) (such conclusive determination is referred to herein as “ Certified Working Capital “), is:

(A) less than the Estimated Closing Date Working Capital, then Seller shall pay, or cause to be paid, to Buyer a dollar amount equal to the difference between the Estimated Closing Date Working Capital and the Certified Working Capital, with such payment being in the form of cash;

 

13

(B) greater than Estimated Closing Date Working Capital, then Buyer shall pay, or cause to be paid, to Seller a dollar amount equal to the difference between the Certified Working Capital and the Estimated Closing Date Working Capital, with such payment being in the form of cash; or

(C) equal to Estimated Closing Date Working Capital, no payment shall be required to be made pursuant to this Section 3.3(b) .

Section 3.4. Allocation of Purchase Price . As promptly as practicable after the Closing, and in any event within 30 days after the Closing, Seller shall have prepared a schedule allocating the Purchase Price among the Purchased Assets and the non-competition agreement contained in Section 7.6(a) in accordance with Section 1060 of the Code and the Treasury Regulations thereunder (and any similar provisions of state, local or foreign Law, as appropriate) and deliver such schedule to Buyer. Buyer shall then have not more than 30 days to notify Seller in writing of Buyer’s acceptance and adoption of the allocation schedule for its Tax Returns or specify the nature of any reasonable objections Buyer may have. Buyer and Seller shall attempt in good faith to resolve any such Buyer objections to Seller’s allocation schedule. Any issues with respect to the allocation that have not been finally resolved within 90 days following the Closing shall be referred to a nationally recognized firm of independent public accountants to which Seller and Buyer mutually agree, whose determination shall be final and binding upon the Parties. Any costs incurred for the services of such firm shall be split equally between Buyer and Seller. Buyer shall timely and properly prepare, execute, file and deliver all such documents, forms and other information as Seller may reasonably request to prepare such allocation. Unless otherwise required under applicable Law, each Party shall report the purchase and sale of the Purchased Assets on all Tax Returns, including timely filed Internal Revenue Service Forms 8594, in accordance with the allocation prepared and accepted in accordance with this Section 3.3 , and no Party will take any position (whether in audits, Tax Returns or otherwise) that is inconsistent with such allocation. For purposes of clarity, an amount included in the Tax basis of the Purchased Assets by Buyer shall not be required to be taken into account or reported by Seller (including for purposes of Internal Revenue Service Form 8594) to the extent such amount is not required to be treated as an amount realized by Seller for Tax purposes.

ARTICLE IV

CLOSING AND CLOSING DELIVERIES

Section 4.1. Closing . The closing of the transactions contemplated by this Agreement (the “ Closing ”) shall take place at the offices of Stradling Yocca Carlson & Rauth, 660 Newport Center Drive, Suite 1600, Newport Beach, California 92660, commencing at 10:00 a.m. local time on the third Business Day following the satisfaction or waiver of all conditions to the obligations of the Parties to consummate the transactions contemplated hereby (other than conditions with respect to actions the respective Parties shall take at the Closing itself), or at such other place or on such other date as may be mutually agreeable to Buyer and Seller. The date on which the Closing takes place is referred to herein as the “ Closing Date .”

 

14

Section 4.2. Buyer Deliveries . At the Closing, Buyer shall deliver or cause to be delivered the Upfront Consideration to Seller and (unless previously delivered) the documents and instruments set forth in Section 8.2 below, in form and substance reasonably satisfactory to Seller and its counsel.

Section 4.3. Seller Deliveries . At the Closing, Seller shall deliver or cause to be delivered (unless previously delivered) to Buyer the documents and instruments set forth in Section 8.1 below, in form and substance reasonably satisfactory to Buyer and its counsel.

Section 4.4. No Control of Other Party’s Business; Other Actions . Nothing contained in this Agreement is intended to give Buyer, directly or indirectly, the right to control or direct Seller’s or its Subsidiaries’ operations prior to the Closing Date. Prior to the Closing Date, Seller and its Subsidiaries shall exercise, consistent with the terms and conditions of this Agreement, complete control and supervision over their respective businesses, assets and operations.

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF SELLER

As a material inducement to Buyer to enter into this Agreement, except as qualified by any exceptions or disclosures set forth in the disclosure schedule attached hereto as Exhibit B (the “ Disclosure Schedule ”), which identifies exceptions by specific Section references, Seller represents and warrants to Buyer, as of the date of this Agreement and as of the Closing Date, that:

Section 5.1. Corporate Organization, Good Standing and Qualification . Section 5.1 of the Disclosure Schedule contains a complete and accurate list of Seller’s and its Subsidiaries’ respective jurisdictions of incorporation and any other jurisdictions in which each of them is qualified to do business as a foreign corporation. Seller is a corporation duly organized, validly existing and in good standing under the Laws of the State of California. Each of Seller’s Subsidiaries is a corporation duly organized, validly existing and in good standing under the Laws of the jurisdiction of its incorporation. Each of the Seller Entities is qualified and in good standing as a foreign corporation in each jurisdiction where the properties owned, leased or operated by it, or the business conducted by it, requires such qualification, except where the failure to be so qualified or in good standing would not, individually or in the aggregate, have a Material Adverse Effect on Seller. Each of the Seller Entities has all requisite corporate power and authority to conduct its business as presently conducted and to own, lease and operate the properties and assets used in such business.

Section 5.2. Authority, Validity and Effect . Seller has all requisite corporate power and authority to execute, deliver and perform its obligations under this Agreement and the Ancillary Agreements to which it is a party and to consummate the transactions contemplated hereby and thereby. This Agreement has been, and when executed at the Closing, the Ancillary Agreements to which it is a party will have been, duly and validly executed by Seller and, assuming the due execution and delivery of this Agreement and the Ancillary Agreements to which it is a party by Buyer, will constitute legal, valid and binding agreements of Seller, enforceable against it in accordance with their respective terms, except as limited by (i) applicable bankruptcy, reorganization, insolvency, moratorium or other similar Laws affecting the enforcement of creditors’ rights generally from time to time in effect, (ii) general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law).

 

15

Section 5.3. No Conflict; Required Filings and Consents .

(a) Except for any filings required to be made under the HSR Act, no notices to, Consents or approvals of, or filings or registrations with, any Governmental Entity are necessary in connection with the execution and delivery by Seller of this Agreement and the Ancillary Agreements to which it is a party, and the consummation by it of the transactions contemplated hereby and thereby. The notices, Consents, or approvals, filings or registrations, and expirations or terminations of waiting periods referred to above are hereinafter referred to as the “ Seller Requisite Regulatory Approvals .”

(b) The execution, delivery and performance by Seller of this Agreement and the Ancillary Agreements to which it is a party, and the consummation by it of the transactions contemplated hereby and thereby, does not and will not (i) conflict with the charter or bylaws of Seller or any of its Subsidiaries, (ii) require any consent or notice under, conflict with, result in a violation or breach of, or constitute a default (or give rise to any right of termination, cancellation or acceleration) under, any of the terms, conditions or provisions of any note, bond, mortgage, Contract or other instrument or obligation to which Seller or any of its Subsidiaries is a party or by which Seller’s or any of its Subsidiaries’ properties or assets may be bound, (iii) conflict with, result in a violation or breach of, or constitute a default (or give rise to any right of termination, cancellation or acceleration) under, any of the terms, conditions or provisions of any Permit, or (iv) subject to obtaining the Seller Requisite Regulatory Approvals referred to in Section 5.3(a) above, conflict with or violate any Order or Law applicable to Seller or any of its Subsidiaries or any of Seller’s or its Subsidiaries’ properties or assets.

Section 5.4. Subsidiaries . Seller has no Subsidiaries other than those listed in Section 5.4 of the Disclosure Schedule, and there are no Subsidiaries of such Subsidiaries. Seller owns all of the issued and outstanding capital stock of each of its Subsidiaries, free and clear of any Liens, and does not own any shares of capital stock or other securities of any other Person. All of the issued and outstanding shares of capital stock of each of Seller’s Subsidiaries have been validly issued and are fully paid and non-assessable. There are no outstanding contractual obligations of Seller or any of its Subsidiaries to make any investment in any of its Subsidiaries or any other Person.

Section 5.5. Leased Real Property .

(a) Section 5.5(a) of the Disclosure Schedule contains a correct legal description for the facility located at 16700 Red Hill Avenue and the street address for each Leased Real Property and a list of all Real Property Leases (including, without limitation, all amendments, extensions, renewals, guaranties and other agreements with respect thereto) for each Leased Real Property. Seller has delivered to Buyer a true and complete copy of the most recent property tax bill for the facility located at 16700 Red Hill Avenue and has delivered to Buyer a true and complete copy of each written Real Property Lease, and in the case of any oral Real Property Leases, a written summary of the terms thereof. With respect to each of the Real Property Leases: (i) the Real Property Lease is legal, valid, binding, enforceable and in full force and effect; (ii) neither the transactions contemplated under this Agreement nor any of the Ancillary Agreements shall result in a breach of or default under the Real Property Lease or otherwise cause the Real Property Lease to cease to be legal, valid, binding, enforceable and in full force and effect on identical terms following the Closing; (iii) none of the Seller Entities nor, to the Knowledge of Seller, any other party to any Real Property Lease is in material breach or default under such Real Property Lease, and no event has occurred or circumstance exists which, with the delivery of notice, passage of time or both,

 

16

would constitute a material breach or default or permit the termination, modification or acceleration of rent under such Real Property Lease; (iv) no party to any Real Property Lease has repudiated any term thereof, and there are no material disputes, oral agreements or forbearance programs in effect with respect to any such Real Property Lease; and (v) no Seller Entity has assigned, subleased, mortgaged, deeded in trust or otherwise transferred or encumbered any Real Property Lease or any interest therein.

(b) The Seller Entities have good title to the Leasehold Improvements, which shall be free and clear of all Liens as of the Closing Date, except Permitted Liens.

Section 5.6. Purchased Assets

(a) Seller or its Subsidiaries, as the case may be, owns good and marketable title to, or a valid leasehold interest in all of the Purchased Assets, free and clear of all Liens, other than Permitted Liens, and all tangible personal property used in the Business is in the possession of Seller. There are no agreements affecting the right of Seller to convey the Purchased Assets to Buyer or any other right of Seller with respect to the Purchased Assets, and Seller has the absolute right, authority, power, and capacity to sell, assign, and transfer the Purchased Assets to Buyer free and clear of any Lien. Upon execution and delivery to Buyer of the Assignment and Assumption Agreement and Bill of Sale, Buyer will acquire good and valid title to the Purchased Assets, free and clear of any Lien.

(b) The Purchased Assets are in good condition and repair, reasonable wear and tear excepted consistent with the age of the assets and properties, and are suitable for immediate use in the Ordinary Course of Business and, to the Knowledge of Seller, free from latent and patent defects. None of the Purchased Assets are in need of repair or replacement other than as part of routine maintenance in the Ordinary Course of Business. The Purchased Assets constitute all of the rights, properties and assets necessary for Buyer to operate the Business in the same manner operated by Seller prior to Closing.

Section 5.7. Financial Information .

(a) Seller has delivered to Buyer true and complete copies of the following financial statements: (i) the audited consolidated balance sheet of Seller as of December 31, 2007, and the related statements of income and cash flows (or the equivalent) for the 12 month period then ended; and (ii) the unaudited consolidated balance sheet of Seller as of June 30, 2008 (the “ Latest Balance Sheet ”), and the related statements of income and cash flows (or the equivalent) for the six month period then ended. Each of the foregoing financial statements (the “ Financial Statements ”) presents fairly Seller’s consolidated financial condition and results of operations as of the times and for the periods referred to therein, and has been prepared in accordance with GAAP. The Financial Statements reflect the consistent application of such accounting principles throughout the periods involved, except as disclosed in the notes to such Financial Statements. The Financial Statements are correct and complete in all respects and are consistent with the books and records of Seller. Seller has also delivered to Buyer copies of all letters from Seller’s auditors to Seller’s board of directors or the audit committee thereof during the thirty-six months preceding the execution of this Agreement, together with copies of all responses thereto.

(b) Seller does not have any Liabilities, or obligations of any nature (whether accrued, absolute, contingent or otherwise), and which have not been reflected in the Financial Statements, other than (i) those Liabilities arising in the Ordinary Course of Business that are not material to the Business, and (ii) those Liabilities incurred since the date of the Latest Balance Sheet in the Ordinary Course of Business.

 

17

Section 5.8. Absence of Certain Changes and Events . Except as set forth in Section 5.8 of the Disclosure Schedule, since the date of the Balance Sheet, Seller has conducted its business only in the Ordinary Course of Business and there has not been any:

(a) discharge or satisfaction of any Lien or payment of any Liability, other than current Liabilities paid in the Ordinary Course of Business;

(b) sale (other than sales of Inventory in the Ordinary Course of Business), licensing, lease, transfer, assignment or other disposition of any of the Purchased Assets, or any mortgage, pledge, or imposition of a Lien on any of the Purchased Assets;

(c) change in Seller’s authorized or issued capital stock, grant of any stock option or right to purchase shares of capital stock of Seller, or issuance of any security convertible into such capital stock;

(d) amendment to the charter or bylaws of Seller or any of its Subsidiaries;

(e) payment (except in the Ordinary Course of Business) or increase by Seller of any bonuses, salaries, or other compensation to any shareholder, director, officer, or employee or entry into any employment, severance, or similar Contract with any director, officer, or employee;

(f) adoption of, amendment to, or increase in the payments to or benefits under, any employee benefits plan;

(g) damage to or destruction or loss of any Purchased Asset, whether or not covered by insurance;

(h) entry into, termination of, or receipt of notice of termination of (i) any license, distributorship, dealer, sales representative, joint venture, credit, or similar Contract to which Seller is a party, or (ii) any Contract or transaction involving a total remaining commitment by Seller of at least $100,000;

(i) sale (other than sales of Inventories in the Ordinary Course of Business), lease, or other disposition of any Purchased Asset or property of Seller or the creation of any Lien on any Asset;

(j) cancellation or waiver of any claims or rights with a value to Seller in excess of $100,000;

(k) indication by any customer or supplier of an intention to discontinue or change the terms of its relationship with Seller;

(l) material change in the accounting methods used by Seller; or

(m) Contract by Seller to do any of the foregoing.

 

18

Section 5.9. Inventory . The Inventory of the Seller Entities is in good and marketable condition, constitutes a sufficient quantity for the normal operation of the Business in accordance with past practice, and is saleable in the Ordinary Course of Business (other than what is reserved for obsolescence on the Financial Statements). Adequate reserves have been reflected in the Latest Balance Sheet for obsolete, excess, damaged, slow-moving, or otherwise unusable Inventory, which reserves were calculated in a manner consistent with past practice and in accordance with GAAP consistently applied. Since the date of the Latest Balance Sheet, each of the Seller Entities has maintained Inventory at levels consistent with its past practices in the Ordinary Course of Business. Seller Entities are not in possession of any inventory not owned by them, including goods already sold. The quantities of each item of Inventories (whether raw materials, work-in-process, or finished goods) are not excessive, but are reasonable in the present circumstances of Seller. None of the agreements of the Seller Entities as of the date hereof (including purchase orders) to purchase any raw materials, spare parts and other materials and supplies are excessive. Each such agreement is reasonable in the present circumstances of Seller and is listed on Section 5.9 of the Disclosure Schedule, together with a description of each item to be purchased and the quantity and price thereof.

Section 5.10. Accounts Receivable . All of the Accounts Receivable set forth on Section 5.10 of the Disclosure Schedule represent valid obligations and arose from sales actually made or services actually performed by Seller in the Ordinary Course of Business. No such Accounts Receivable has been pledged or assigned to any other Person. There is no contest, claim, defense or right of set off with any account debtor of any Account Receivable, in excess of the reserves taken into account in the calculation of Closing Working Capital, relating to the amount or validity of such Account Receivable. Section 5.10 of the Disclosure Schedule contains a complete and accurate list of all Accounts Receivable as of the date of the Latest Balance Sheet, which list sets forth the aging of each Account Receivable.

Section 5.11. Assigned Contracts .

(a) Each of the Assigned Contracts is valid, binding and enforceable in accordance with its terms, except as limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors’ rights; and (ii) general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law). Each Seller Entity has performed all material obligations required to be performed by it and is not in default under or in breach of nor in receipt of any claim of default or breach under any such Assigned Contract to which it is a party. No event has occurred which with the passage of time or the giving of notice or both would be reasonably expected to result in a material default, breach or event of noncompliance by a Seller Entity nor, to the Knowledge of Seller, any other party under any Assigned Contract. No Seller Entity has received written notice of the intention of any party to cancel or terminate any such Assigned Contract, and, to the Knowledge of Seller, there has not been any breach or anticipated breach by the other parties to any such Assigned Contract.

(b) Seller has provided Buyer with a true and correct copy of all Assigned Contracts, in each case together with all amendments, waivers, or other changes thereto.

Section 5.12. Litigation . There are no, and during the last five years there have not been any, claims, actions, suits, proceedings (arbitration or otherwise), or, to the Knowledge of Seller, investigations involving or affecting Seller, its Subsidiaries, or their respective business or assets, or Seller’s directors or officers in their capacities as such, before or by any court or other Governmental Entity, or before an arbitrator of any kind; and no pending claim, action, suit, proceeding, or, to the

 

19

Knowledge of Seller, investigation, if determined adversely, could either individually or in the aggregate have a Material Adverse Effect on Seller or the Purchased Assets. To the Knowledge of Seller, no such claim, action, suit, proceeding or investigation is presently threatened or contemplated and there are no facts that could reasonably serve as a basis for any such claim, action, suit, proceeding, or investigation. There are no unsatisfied judgments, penalties, or awards against Seller or, to the Knowledge of Seller, affecting Seller or any of its businesses, properties, or assets, including the Purchased Assets. All claims made during the last five years under Seller’s general liability insurance or worker’s compensation policies are disclosed in Section 5.12 of the Disclosure Schedule and all open claims are fully described therein. To the Knowledge of Seller, there is no pending or threatened legal proceeding that challenges, or that may have the effect of preventing, delaying, making illegal or otherwise interfering with, any of the transactions contemplated in this Agreement or the Ancillary Agreements.

Section 5.13. Proprietary Rights .

(a) Section 5.13 of the Disclosure Schedule contains a complete and accurate list of all registered Proprietary Rights of the Seller Entities. Section 5.13 of the Disclosure Schedule also contains a complete and accurate list of all material licenses granted by each of the Seller Entities to any third party and all licenses granted by any third party to any of the Seller Entities, in each case identifying the subject Proprietary Rights. Seller has provided to Buyer correct and complete copies of all documents embodying such licenses.

(b) (i) Seller or Seller’s Subsidiaries, as applicable, own and possess free and clear of all Liens, other than Permitted Liens, all right, title, and interest in and to, or has the right to use pursuant to a valid and enforceable license, the Proprietary Rights necessary for the operation of the Business as currently operated and as proposed to be conducted; (ii) no Seller Entity has received any warning, inquiry, communication or notice, written or otherwise, of invalidity, infringement, or misappropriation from any third party with respect to any such Proprietary Rights; (iii) no Seller Entity has interfered with, infringed upon, misappropriated, or otherwise come into conflict with any Proprietary Rights of any third parties; and (iv) no third party has interfered with, infringed upon, misappropriated, or otherwise come into conflict with any Proprietary Rights of the Seller Entities.

(c) All current and former employees, independent contractors and consultants of each Seller Entity have entered into confidentiality, invention assignment and proprietary information agreements with such Seller Entity in substantially the form attached to Section 5.13 of the Disclosure Schedule. To the Knowledge of Seller, no such employee, independent contractor or consultant of any Seller Entity is obligated under any Contract or subject to any Order of any court or administrative agency, or is subject to any other restriction that would interfere with his or her duties for and to such Seller Entity, nor has any such employee, independent contractor or consultant failed to comply with his or her corresponding confidentiality, invention assignment and proprietary information agreement or failed to cooperate with Seller on the assignment of inventions to Seller pursuant to such agreement. To the Knowledge of Seller, the carrying on of the Business by the employees, independent contractors and consultants of the Seller Entities and the conduct of the Business as presently conducted will not conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any Contract under which any of such employees, independent contractors or consultants is now obligated. To the Knowledge of Seller, at no time during the conception of or reduction to practice of any of the Proprietary Rights of any of the Seller Entities was any developer, inventor or other contributor to such Proprietary Rights operating under any grants from any Governmental Entity or private source, performing research sponsored by any

 

20

Governmental Entity or private source or subject to any employment agreement or invention assignment or nondisclosure agreement or other obligation with any other third party that could materially adversely affect the rights of such Seller Entities in such Proprietary Rights.

Section 5.14. Taxes .

(a) Seller is an S Corporation as defined in Section 1361 of the Code and has been an S Corporation without interruption since January 1, 2005.

(b) Except for Property Tax Returns, each of the Seller Entities has filed, or has caused to be filed, on a timely basis, all Tax Returns required to be filed by or with respect to such Seller Entity, and all Taxes shown to be payable on such Tax Returns or on subsequent assessments with respect thereto have been paid in full. All Tax Returns and reports filed by Seller are true, correct and complete. The unpaid Taxes of the Seller Entities (i) did not, as of the most recent fiscal month end, exceed the reserve for Tax liability set forth on the Latest Balance Sheet, and (ii) do not exceed that reserve as adjusted for the passage of time through the Closing Date in accordance with the past custom and practice of each of the Seller Entities in filing its Tax Returns. The Seller Entities have timely withheld and paid over all Taxes required to have been withheld and paid over, and complied with all information reporting and backup withholding requirements, including maintenance of required records with respect thereto, in connection with amounts paid or owing to any employee, creditor, independent contractor, stockholder or other third party. There are no Liens on any of the assets of the Seller Entities with respect to Taxes, other than Liens for Taxes not yet due and payable. The Seller Entities have furnished or made available to Buyer true and complete copies of all Tax Returns for all periods ending on or after January 1, 2004.

(c) No Tax Return of any Seller Entity is currently under audit, and there are no disputes pending in respect of, or claims asserted for, Taxes on any Seller Entity, nor are there any pending or, to Seller’s Knowledge, threatened, audits or investigations or outstanding matters under discussion with any taxing authorities with respect to the payment of Taxes by the Seller Entities, nor has any Seller Entity given or been requested by any taxing authority to give any waivers extending the statutory period of limitations applicable to any Tax Return for any Taxes of such Seller Entity. None of the Seller Entities has requested any extension of time within which to file any Tax Return, which Tax Return has not since been filed.

(d) None of the Seller Entities has any Liability for the Taxes of any Person under Treasury Regulations Section 1.1502-6 of the income tax regulations (or any similar provision of state, local or foreign Law).

(e) None of the Seller Entities is a party to or bound by any closing agreement or offer in compromise with any taxing authority.

(f) None of the Seller Entities has engaged in a transaction that is the same or substantially similar to one of the types of transactions that the Internal Revenue Service has determined to be reportable transaction, as set forth in Treasury Regulation Section 1.6011-4(b).

(g) No Seller Entity is a party to or has any obligation under any Tax sharing, indemnity or allocation agreement or arrangement.

 

21

(h) During the five-year period ending on the date hereof, no Seller Entity was a distributing corporation or a controlled corporation in a transaction intended to be governed by Section 355 of the Code.

Section 5.15. Brokers’ Fees . Except for fees payable to Houlihan Lokey Howard & Zukin, there are no claims for brokerage commissions, finders’ fees, or similar compensation in connection with the transactions contemplated by this Agreement or the Ancillary Agreements based on any arrangement or agreement made by or on behalf of Seller.

Section 5.16. Governmental Permits . Section 5.16 of the Disclosure Schedule contains a complete and accurate listing of all material Permits owned or possessed by each of the Seller Entities or used by such Seller Entities in the operation of the Business. Seller has delivered to Buyer copies of all such Permits. Seller or Seller’s Subsidiaries, as applicable, own or possess such right in and to all Permits which are necessary to conduct the Business as presently conducted, except where the failure to do so would not have a Material Adverse Effect on Seller. Seller is in material compliance with all of the terms and requirements of each such Permit and no loss or expiration of any Permit is pending or, to the Knowledge of Seller, threatened or reasonably foreseeable (including, without limitation, as a result of the transactions contemplated hereby) other than expiration in accordance with the terms thereof. Each Permit listed or required to be listed in Section 5.16 of the Disclosure Schedule is valid and in full force and effect. All applications required to have been filed for the renewal of such Permits have been duly filed on a timely basis.

Section 5.17. Employees .

(a) Seller has provided to Buyer a true, correct and complete schedule setting forth the number of employees, directors, or officers at the facilities of each Seller Entity and the following information for all employees of each of the Seller Entities and for each consultant and independent contractor regularly retained (including each such Person on leave or layoff status): (i) employee name and job title; (ii) current annual rate of compensation (identifying bonuses separately) and any change in compensation since January 1, 2007; (iii) vacation accrued and service credited for purposes of vesting and eligibility to participate in any employee benefit plans (as defined in Section 3(3) of ERISA); and (iv) any automobile leased or owned by Seller primarily for use by any of the foregoing Persons.

(b) To the Knowledge of Seller, none of Seller’s employees, directors, or officers is a party to, or is otherwise bound by, any agreement or arrangement with any Person or entity other than Seller that limits or adversely affects the performance of his or her duties, the ability of Seller to conduct its business, or his or her freedom to engage in any of the businesses conducted by Seller (including any confidentiality, non-competition, or proprietary rights agreements).

(c) Section 5.17 of the Disclosure Schedule describes each employment, severance, change of control, consulting, commission, agency, and representative agreement or arrangement to which Seller is a party or is otherwise bound, including all agreements and commitments relating to wages, hours, or other terms or conditions of employment (other than unwritten employment arrangements terminable at will without payment of any contractual severance or other amount). All employees of Seller are “employees at will.” Seller has not made any commitments to any of its employees respecting any possible employment or pay increases by Buyer following the Closing. Seller has complied in all material respects with all Laws related to the employment of employees, including those relating to hours, wages, immigration, equal employment opportunity, employment discrimination, and employee safety.

 

22

(d) To the Knowledge of Seller, no employee and no group of employees or independent contractors of any of the Seller Entities has any plans to terminate his, her, or their employment or relationship with any such Seller Entity.

(e) Each Person who has received compensation for the performance of services on behalf of a Seller Entity has been properly classified as an employee or independent contractor in accordance with applicable Laws.

(f) Each Seller Entity does not now have nor has at any time since inception of such Seller Entity had any union-represented employees.

Section 5.18. Employee Benefit Plans .

(a) Section 5.18(a) of the Disclosure Schedule identifies all “employee benefit plans” (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ ERISA ”)) and all other benefit arrangements and commitments whether or not employee benefit plans, including, but not limited to, bonus, deferred or incentive compensation, profit sharing, retirement, vacation, sick leave, educational assistance, disability, medical, dental, life insurance or severance plans, and material fringe benefit plans sponsored, maintained or contributed to by each Seller Entity or with respect to which such Seller Entity has any Liability (collectively, the “ Seller Plans ”). None of the Seller Plan