ASSET PURCHASE AGREEMENT

Exhibit 10.1

ASSET PURCHASE AGREEMENT

 

among

 

B.H.I.T., INC.

as Purchaser,

 

L.A. COLO, LLC

as Seller,

 

and

 

IRON RAIL GROUP, LLC,

as the Sole Member

 

Dated as of July 24, 2008

 

 

TABLE OF CONTENTS

 

ARTICLE I DEFINITIONS		2
1.1	Definitions	2
1.2	Interpretation	10
ARTICLE II PURCHASE & SALE OF PURCHASED ASSETS		11
2.1	Purchased Assets	11
2.2	Excluded Assets	12
2.3	Assumed Liabilities	13
2.4	Retained Liabilities	13
2.5	Purchase Price; Payment of Purchase Price; Adjustment	15
2.6	Allocation of Purchase Price	17
2.7	Closing .	17
2.8	Transfer Taxes	17
2.9	Consents	18
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER AND THE MEMBER		18
3.1	Organization and Qualification	19
3.1.1	Capitalization	19
3.1.2	Subsidiaries	19
3.1.3	Articles of Organization and Operating Agreement	19
3.2	Authority Relative to this Agreement	19
3.3	No Conflict	20
3.4	Required Filings and Consents	20
3.5	Financial Statements	20
3.6	Absence of Undisclosed Liabilities	21
3.7	Accounts Receivable	21
3.8	Absence of Certain Changes or Events	21
3.9	Properties; Title.	22
3.10	Intellectual Property.	23
3.11	Contracts	25
3.12	Service Warranties	27
3.13	Permits	27
3.14	Compliance with Laws	27
3.15	Claims and Proceedings	27
3.16	Books and Records	28
3.17	Business Activity Restriction	28

 

 

3.18	Major Customers and Suppliers	28
3.19	Employees; Labor Disputes.	29
3.20	Employee Benefits	30
3.21	No Finder	30
3.22	Affiliate Transactions	30
3.23	Certain Business Practices	31
3.24	Environmental Matters	31
3.25	Insurance	32
3.26	No Significant Items Excluded	33
3.27	Taxes and Tax Returns	33
3.28	Intentionally Omitted.	33
3.29	Bank Accounts	33
3.30	Inventory	33
3.31	Disclosure	34
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE MEMBER		34
4.1	Title; Agreements	34
4.2	Authority Relative To This Agreement	34
4.3	No Conflict	34
4.4	Consents	35
4.5	No Finder	35
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PURCHASER		35
5.1	Organization and Qualification	35
5.2	Authority Relative to this Agreement	35
5.3	No Conflict	36
5.4	Required Filings and Consents	36
5.5	SEC Reports.	36
5.6	No Finder.	36
5.7	Financial Capacity.	37
ARTICLE VI COVENANTS OF SELLER AND THE MEMBER PRIOR TO CLOSING DATE		37
6.1	Conduct of Business	37
6.2	Corporate Examinations and Investigations	38
6.3	Employment Matters	39
6.4	Consents, Filings and Authorizations; Efforts to Consummate	40
6.5	No Shop	40

 

 

6.6	Notices of Certain Events	40
6.7	Public Announcements	41
6.8	Confidentiality	41
6.9	Expenses	42
6.10	Supplements to Disclosure Schedules	42
6.11	Additional Information	42
6.12	Member Approval	43
6.13	Company Name	43
6.14	Financial Statements	43
ARTICLE VII CONDITIONS TO CLOSING		43
7.1	Conditions to the Obligations of Seller and Purchaser	43
7.2	Conditions to Obligations of Seller and the Member	44
7.3	Conditions to Obligations of Purchaser	45
ARTICLE VIII TERMINATION; EFFECT OF TERMINATION		47
8.1	Termination of Agreement	47
8.2	Effect of Termination; Right to Proceed.	48
ARTICLE IX POST-CLOSING COVENANTS		48
9.1	Non-Solicitation	48
9.2	Noncompetition	49
9.3	Claims Under Insurance Policies; Maintenance of Insurance Policies	49
9.4	Certain Transitional Matters	49
9.5	Further Assurances	50
9.6	Tax Matters	50
9.7	Accounts.	50
9.8	Assignment of Note.	51
ARTICLE X SURVIVAL; INDEMNIFICATION		51
10.1	Survival of Representations and Warranties	51
10.2	Indemnification by Seller and the Member	52
10.3	Indemnification by Purchaser	52
10.4	Limitation of Claims.	53
10.5	Notice of Claims	53
10.6	Opportunity to Defend Third Party Claims	54
10.7	Effect of Investigation	54
ARTICLE XI GENERAL		54
11.1	Notices	54
11.2	Severability; Parties in Interest	56
11.3	Assignment; Binding Effect; Benefit	56

 

 

11.4	Incorporation of Exhibits	56
11.5	Governing Law	57
11.6	Waiver of Jury Trial	57
11.7	Headings; Interpretation	57
11.8	Counterparts	57
11.9	Entire Agreement	57
11.10	Waivers and Amendments; Non-Contractual Remedies; Preservation of Remedies	57

 

 

EXHIBITS

 

 

ASSET PURCHASE AGREEMENT

 

THIS ASSET PURCHASE AGREEMENT is made as of July 24, 2008 by and among B.H.I.T., Inc., a Delaware corporation (“ Purchaser ”), L.A. Colo, LLC, a Delaware limited liability company (the “ Seller ”) and Iron Rail Group, LLC, a Delaware limited liability company (the “ Member ”).

RECITALS:

 

A.   Seller engages in the business of building, repairing, maintaining and rehabilitating railroad tracks and related railroad infrastructure (together with all other business which is being conducted by Seller as of the date hereof, the “ Business ”). Subject to the terms and conditions set forth herein, Seller desires to sell, convey, transfer, assign and deliver to Purchaser, and Purchaser desires to purchase and acquire from Seller, free and clear of all Liens, all of Seller’s right, title and interest in and to all of the Purchased Assets (the “ Acquisition ”).

B.   In consideration of the direct and indirect benefits accruing to the Member as the owner of all of the issued and outstanding membership interests of Seller, the Member has agreed to be a Party to this Agreement and to make the representations and warranties herein along with Seller in order to induce Purchaser to enter into this Agreement, without which inducement Purchaser would not have entered into this Agreement.

NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby expressly acknowledged, the Parties, intending to be legally bound, hereby agree as follows:

ARTICLE I DEFINITIONS

1.1   Definitions

“ Accounts Receivable ” means: (i) all trade accounts receivable and other rights to payment from customers of Seller and the full benefit of all security for such accounts or rights to payment, including all trade accounts receivable representing amounts receivable in respect of services rendered to customers of Seller; (ii) all other accounts or notes receivable of Seller and the full benefit of all security for such accounts or notes; and (iii) any Claim, remedy or other right related to any of the foregoing.

“ Acquisition ” shall have the meaning given to such term in the Recitals.

“ Acquisition Proposal ” shall have the meaning given to such term in Section 6.5.

“ Affiliate ” with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with, such Person; provided that, for purposes of this definition, “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or by contract or otherwise.

 

 

“ Agreement ” means this Asset Purchase Agreement.

“ Asserted Liability ” shall have the meaning given to such term in Section 10.5.

“ Assets ” means properties, rights, interests and assets of every kind, real, personal or mixed, tangible and intangible, used or usable by Seller in the Business.

“ Assigned Contracts ” shall have the meaning given to such term in Section 2.1(d).

“ Assignment and Assumption Agreement ” shall have the meaning given to such term in Section 7.2(d)(iii).

“ Assumed Liabilities ” shall have the meaning given to such term in Section 2.3.

“ Audited Statements ” shall have the meaning given to such term in Section 3.5.

“ Bankruptcy Exception ” shall have the meaning given to such term in Section 3.2.

“ Benefit Plans ” means all employee benefit plans as defined in Section 3(3) of ERISA and all other employee benefit arrangements, obligations, customs, or practices (including but not limited to a payroll practice), whether or not legally enforceable, to provide benefits, other than salary, as compensation for services rendered, to current or former directors, officer, employees or agents of Seller or an ERISA Affiliate, including, without limitation, employment agreements, severance agreements, executive compensation arrangements, incentive programs or arrangements, sick leave, vacation pay, severance pay policies, plant closing benefits, salary continuation for disability, consulting or other compensation arrangements, workers’ compensation, deferred compensation, bonus, membership interest option or purchase, hospitalization, medical insurance, life insurance, tuition reimbursement or scholarship programs, any plans providing benefits or payments in the event of a change of control, change in ownership, or sale of a substantial portion (including all or substantially all) of the assets of any business of Seller, other than Multiemployer Plans, maintained by Seller or an ERISA Affiliate or to which Seller or an ERISA Affiliate has contributed or is or was obligated to make payments, in each case with respect to any current or former employees, directors or agents of Seller or an ERISA Affiliate in the six-year period before the date of this Agreement.

“ Books and Records ” shall have the meaning given to such term in Section 3.16.

“ Broker ” shall have the meaning given to such term in Section 3.21.

“ Business ” shall have the meaning given to such term in the Recitals.

“ Business Day ” means any day other than a Saturday, Sunday or a day on which banks in New York City are authorized or obligated by applicable Law or executive order to close or are otherwise generally closed.

 

 

“ Capital Expenditure ” shall mean the purchase of any asset which would be properly classified as a fixed asset on Seller’s financial statement in accordance with GAAP.

“ CERCLA ” shall have the meaning given to such term in Section 3.24.

“ Claim ” shall have the meaning given to such term in Section 3.15.

“ Closing ” shall have the meaning given to such term in Section 2.7.

“ Closing Balance Sheet ” means a balance sheet of Seller, dated as of the close of business on the date immediately preceding the Closing Date, prepared by Purchaser in accordance with GAAP.

 

“ Closing Date ” shall have the meaning given to such term in Section 2.7.

“ Closing Working Capital Calculation ” shall have the meaning given to such term in Section 2.5(b).

“ Code ” means the Internal Revenue Code of 1986, as it may be amended from time to time, and any successor thereto. Any reference herein to a specific section or sections of the Code shall be deemed to include a reference to any corresponding provision of future law.

“ Confidential Information ” shall have the meaning given to such term in Section 6.8(a).

“ Contract ” means all agreements, whether oral or written and whether express or implied (whether legally binding or not), including, without limitation, contracts, contract rights, promises, commitments, undertakings, customer accounts, orders, leases, guarantees, warranties and representations, franchises benefiting or relating to the Business or the ownership, construction, development, maintenance, repair, management, use, occupancy, possession or operation thereof, or the operation of any of the programs or services in conjunction with the Business and all renewals, replacements and substitutions therefor.

“ Contract Consent ” shall have the meaning given to such term in Section 2.10

“ Damages ” shall have the meaning given to such term in Section 10.2(a).

“ Due Diligence Period ” shall have the meaning given to such term in Section 6.2.

“ Employee ” means any individual employed by Seller in the conduct of the Business as of the Closing Date.

“ Environmental Law ” means all foreign, federal, state and local laws, statutes, codes, regulations, rules, ordinances, orders, standards, permits, licenses, actions, policies, principles of common law (including but not limited to all such principles under which claims may be alleged for any type of injury or damage relating to contamination related to Hazardous Materials as defined herein), and requirements (including consent decrees, judicial decisions, administrative orders and self-implementing closure requirements) relating to the protection, preservation or conservation of the environment and to public or worker health and safety, all as amended, hereafter amended or reauthorized, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), 42 U.S.C. § 9601 et seq., the Resource Conservation and Recovery Act (“RCRA”), 42 U.S.C. § 6901 et seq., the Emergency Planning and Community Right to Know Act, 42 U.S.C. § 11001 et seq., the Clean Air Act, 42 U.S.C. § 7401 et seq., the Federal Water Pollution Control Act, 33 U.S.C. § 1251 et seq., the Toxic Substances Control Act, 15 U.S.C. § 2601 et seq., the Safe Drinking Water Act, 42 U.S.C. § 300f et seq., and the Occupational Safety and Health Act, 29 U.S.C. § 651 et seq.

 

 

“ ERISA ” means the Employee Retirement Income Security Act of 1974, as it may be amended from time to time, and any successor thereto.

“ ERISA Affiliate ” means any trade or business the employees of which, together with the employees of Seller, are treated as employed by a single employer under Section 414(b), (c), (m) or (o) of the Code.

“ Exchange Act ” shall have the meaning given to such term in Section 5.5.

“ Excluded Contracts ” shall mean the Timberline Software License Agreement.

“ GAAP ” means generally accepted accounting principles applied on a consistent basis in effect on the date hereof as set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession of the United States.

“ Governmental Authority ” shall mean:

(a)   any international, foreign, provincial, United States, federal, state, county, municipal or local government or governmental or quasi-governmental organization or any component part (including, but not limited to, any officer, official, branch, court, arbitration panel, agency, department, regulatory body, authority, tribunal, commission, instrumentality or agency) of any government or governmental or quasi-governmental organization,

(b)   any Person with any regulatory power or authority or any governmental or quasi-governmental power or authority (including, without limitation, any Person with any power or authority to administer, assess, audit, calculate, collect, impose, investigate, review or otherwise act with respect to any Tax or any Tax-related matter), or

(c)   any Person acting for or on behalf of any of the foregoing.

“ Hazardous Materials ” means (a) “hazardous substances,” as defined by CERCLA; (b) “hazardous wastes,” as defined by RCRA; (c) petroleum or petroleum products, including without limitation, crude oil or any fraction thereof which is liquid at standard conditions of temperature and pressure; (d) any radioactive material, including, without limitation, any source, special nuclear, or by-product material, as defined in 42 U.S.C. §2011 et seq.; (e) asbestos or mold in any form or condition; (f) polychlorinated biphenyls; (g) biomedical wastes; and (h) any other material, substance or waste regarding which liabilities or standards of conduct may be imposed under any Environmental and Safety Requirement.

 

 

“ Indemnified Party ” shall have the meaning given to such term in Section 10.5.

“ Indemnifying Party ” shall have the meaning given to such term in Section 10.5.

“ Independent Accounting Firm ” means an independent accounting firm of national reputation (other than an accounting firm regularly used by Purchaser unless otherwise agreed to by Seller) selected by Purchaser and reasonably acceptable to Seller.

“ Insurance Policies ” shall have the meaning given to such term in Section 3.25.

“ Intellectual Property ” shall have the meaning given to such term in Section 3.10(a).

“ Intellectual Property Rights ” means collectively, rights under patent, trademark, copyright, and trade secret laws, and any other intellectual property, industrial, or proprietary rights worldwide, however designated, including Moral Rights and similar rights.

“ Inventory ” means the consumable inventory of Seller, wherever located, including, without limitation, all finished goods, works in progress, raw materials, spare parts and all other materials and supplies to be used in or consumed by Seller in the ordinary course of business.

“ IRS ” means the United States Internal Revenue Service, or any successor agency thereto.

“ Key Managers ” means Terry Benton and Matt Crone, who are members of Seller’s management team.

“ Knowledge ” means the actual knowledge of a particular fact or other matter being possessed as of the pertinent date by Roy Dano and Frank W. Condurelis, after due inquiry and reasonable investigation.

“ Latest Balance Sheet ” shall have the meaning given to such term in Section 3.6.

“ Latest Balance Sheet Date ” shall have the meaning given to such term in Section 3.6.

“ Laws ” means any Federal, state, foreign or local statute, law, ordinance, regulation, rule, code, Order, other requirement or rule of law.

“ Liability ” means any direct or indirect indebtedness, liability, assessment, expense, claim, loss, damage, deficiency, obligation or responsibility, known or unknown, disputed or undisputed, joint or several, vested or unvested, executory or not, fixed or unfixed, choate or inchoate, liquidated or unliquidated, secured or unsecured, determinable or undeterminable, accrued or unaccrued, absolute or not, actual or potential, contingent or otherwise (including any liability under any guarantees, letters of credit, performance credits or with respect to insurance loss accruals).

 

 

“ Licensed Intellectual Property ” shall have the meaning given to such term in Section 3.10(c).

“ Lien ” means any mortgage, lien (including mechanics, warehousemen, laborers and landlords liens), claim, pledge, hypothecation, charge, community property interest, condition, equitable interest, right-of-way, easement, encroachment, security interest, preemptive right, right of first refusal or similar restriction or right, option, judgment, title defect or encumbrance of any kind.

“ Listed Contracts ” shall have the meaning given to such term in Section 3.11(a).

“ Major Customer ” shall have the meaning given to such term in Section 3.18(a).

“ Major Supplier ” shall have the meaning given to such term in Section 3.18(b).

“ Material Adverse Effect ” means, with respect to Seller, any change in or effect on the Business or the Assets that, individually or in the aggregate, is, or is reasonably likely to be, materially adverse to the Business, Assets, Liabilities, financial condition, or results of operations of the Seller, taken as a whole.

“ Member ” shall have the meaning given to such term in the preamble of this Agreement.

“ Membership Interest ” shall have the meaning given to such term in Section 2.5.

“ Multiemployer Plan ” means any multiemployer plan as defined in Section 3(37) of ERISA or a plan subject to Section 413(b) and (c) of the Code, to which neither Seller nor any ERISA Affiliate has contributed or is or was obligated to make payments, in each case with respect to any current or former employees of Seller or an ERISA Affiliate before the Closing Date.

“ Multiple Employer Plan ” means a Benefit Plan that is a multiple employer plan subject to Sections 4063 and 4064 of ERISA or Section 413(c) of the Code.

“ Orders ” shall have the meaning given to such term in Section 3.14.

“ Party ” means the Seller, Purchaser or Member, individually, as the context so requires, and the term “Parties” means collectively, Seller, Purchaser and the Member.

“ PCB’s ” shall have the meaning given to such term in Section 3.24.

“ Pension Plan ” means a Benefit Plan that is an employee pension benefit plan as defined in Section 3(2) of ERISA.

“ Permits ” means all Governmental Authorizations, permits, licenses, variances, permissive uses, certificates, certificates of occupancy, certifications, interim licenses, establishment registrations, easements, identification and registration numbers, permits and other governmental authorizations of every nature whatsoever.

 

 

“ Permitted Encumbrances ” shall have the meaning given to such term in Section 3.9(a).

“ Person ” means an individual, corporation, partnership, limited partnership, limited liability company, limited liability partnership, syndicate, person (including a “person” as defined in Section 13(d)(3) of the Exchange Act, together with the rules and regulations promulgated thereunder), trust, association, entity or Governmental Authority.

“ Prepaid Expenses ” as of any date shall mean payments made by Seller with respect to the Purchased Assets or the Business, which constitute prepaid expenses in accordance with GAAP.

“ Purchased Assets ” shall have the meaning given to such term in Section 2.1.

“ Purchase Price ” shall have the meaning given to such term in Section 2.5.

“ Purchase Price Objection Notice ” shall have the meaning given to such term in Section 2.5(b).

“ Purchase Price Resolution ” shall have the meaning given to such term in Section 2.5(b).

“ Purchaser ” shall have the meaning given to such term in the preamble of this Agreement.

“ Purchaser Indemnitees ” shall have the meaning given to such term in Section 10.2(a).

“ Real Property Leases ” shall have the meaning given to such term in Section 3.9(a).

“ Representatives ” means, with respect to any Party to this Agreement, such Party’s directors, officers, Affiliates, employees, attorneys, accountants, representatives, lenders, consultants, independent contractors and other agents.

“ Retained Liabilities ” shall have the meaning given to such term in Section 2.4.

“ Reviewing Parties ” shall have the meaning given to such term in Section 6.7.

“ SEC ” shall have the meaning given to such term in Section 5.5.

“ SEC Reports ” shall have the meaning given to such term in Section 5.5.

“ Securities Act ” shall have the meaning given to such term in Section 3.30.

“ Security Right ” means, with respect to any security, Membership Interest, any option, warrant, subscription right, preemptive right, other right, proxy, put, call, demand, plan, commitment, agreement, understanding or arrangement of any kind relating to such security or Membership Interest, whether issued or unissued, or any other security convertible into or exchangeable for any such security or Membership Interest. “Security Right” includes any right relating to issuance, sale, assignment, transfer, purchase, redemption, conversion, exchange, registration or voting and includes rights conferred by statute, by the issuer’s governing documents or by agreement.

 

 

“ Seller ” shall have the meaning given to such term in the preamble of this Agreement.

“ Seller Debts ” means: (i) money borrowed by Seller from any Person; (ii) any indebtedness of Seller arising under leases required to be capitalized under GAAP or evidenced by a note, bond, debenture or similar instrument; (iii) any indebtedness of Seller arising under purchase money obligations or representing the deferred purchase price of property and services (other than accounts payable and current trade payables incurred in the ordinary course of the Business); and (iv) any Liability of Seller under any guaranty, letter of credit, performance credit or other agreement having the effect of insuring a creditor against loss.

“ Seller Financial Statements ” shall have the meaning given to such term in 3.5.

“ Seller Indemnitees ” shall have the meaning given to such term in Section 10.3.

“ Seller’s Properties ” means any real property or facility currently leased or operated by the Seller or previously owned, leased or operated by Seller.

“ Seller’s Working Capital ” means the excess of (i) Seller’s (a) Accounts Receivable (but not Excluded Accounts Receivable), net of allowance for doubtful accounts, plus (b) Inventory, net of a reserve for obsolescent, damaged, slow moving or unmarketable inventory plus (c) Prepaid Expenses (other than Prepaid Expenses included in the Excluded Assets) plus (d) cash and cash equivalents plus (e) any other assets which would be classified as current assets in accordance with GAAP over (ii) Seller’s (a) accounts payable plus (b) accrued expenses plus (c) all other liabilities which would be classified as current liabilities in accordance with GAAP, all as set forth on the Closing Balance Sheet, but excluding from the calculation thereof any asset which is not being assigned to Purchaser and any such liability which is not being assumed by Purchaser.

“ Software Programs ” shall have the meaning given to such term in Section 3.10(e).

“ Subsidiary ” means, with respect to Seller, any corporation, partnership, limited partnership, limited liability company, limited liability partnership, joint venture or other legal entity of which Seller (either alone or through or together with any other subsidiary) owns, directly or indirectly, a majority of the stock or other equity interests.

“ Tangible Personal Property ” means all machinery, equipment, tools, furniture, fixtures and equipment, computer hardware, supplies, materials, leasehold improvements, automobiles, computing and telecommunications equipment and other items of tangible personal property, of every kind owned or leased by Seller and used in the Business (wherever located and whether or not carried on Seller’s books), together with any express or implied warranty by the manufacturers or sellers or lessors of any item or component part thereof, and all maintenance records and other documents relating thereto.

“ Taxes ” means: (i) any and all taxes, fees, levies, duties, tariffs, imposts and other charges of any kind, imposed by any Governmental Authority or taxing authority, including taxes or other charges on, measured by, or with respect to income, franchise, windfall or other profits, gross receipts, property, sales, use, membership interest, payroll, employment, social security, workers’ compensation, unemployment compensation or net worth; taxes or other charges in the nature of excise, withholding, ad valorem, stamp, transfer, value-added or gains taxes; license, registration and documentation fees; and customers’ duties, tariffs and similar charges; (ii)  any Liability for the payment of any amounts of the type described in clause (i) above as a result of being a member of an affiliated, combined, consolidated or unitary group for any Taxable period; (iii) any Liability for the payment of amounts of the type described in clauses (i) or (ii) above as a result of being a transferee of, or a successor in interest to, any Person or as a result of an express or implied obligation to indemnify any Person; and (iv) any and all interest, penalties, additions to tax and additional amounts imposed in connection with or with respect to any amounts described in clauses (i), (ii) or (iii) above.

 

 

“ Tax Return ” means any return, report, statement, form or other documentation (including any additional or supporting material and any amendments or supplements) filed or maintained, or required to be filed or maintained, with respect to or in connection with the calculation, determination, assessment or collection of any Taxes.

“ Transaction Documents ” means, collectively, this Agreement and each of the other agreements and instruments to be executed and delivered by all or some of the Parties in connection with the consummation of the Acquisition.

“ Unaudited Statements ” shall have the meaning given to such term in Section 7.3(e)(xi).

“ VEBA ” means an association that is or is intended to be a voluntary employees’ beneficiary association under Section 501(c)(9), whose members include current or former employees of Seller or an ERISA Affiliate in the six-year period before the date of this Agreement.

“ Welfare Plan ” means a Benefit Plan that is an employee welfare benefit plan as defined in Section 3(1) of ERISA.

“ Working Capital Adjustment Amount ” shall have the meaning given to that term in Section 2.5(b).

“ Working Capital Target ” shall have the meaning given to that term in Section 2.5(b).

1.2   Interpretation

Unless the context otherwise requires, the terms defined in Section 1.1 shall have the meanings herein specified for all purposes of this Agreement, applicable to both the singular and plural forms of any of the terms defined herein. All accounting terms defined in Section 1.1 , and those accounting terms used in this Agreement not defined in Section 1.1 , except as otherwise expressly provided herein, shall have the meanings customarily given thereto in accordance with GAAP. When a reference is made in this Agreement to Sections, such reference shall be to a Section of this Agreement unless otherwise indicated. Whenever the words “include,” “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation.”

 

 

ARTICLE II PURCHASE & SALE OF   PURCHASED   ASSETS

2.1   Purchased Assets

Upon the terms and subject to the conditions of this Agreement and in reliance upon the representations, warranties, covenants and agreements of Seller and the Member contained herein, at the Closing, Seller shall sell, convey, transfer, assign and deliver to Purchaser, and Purchaser shall purchase and acquire from Seller, free and clear of all Liens other than the Permitted Encumbrances, all of Seller’s right, title and interest in and to all of the Assets which Seller owns or in which Seller has any right, title or interest, other than the Excluded Assets (collectively, the “ Purchased Assets ”), including, without limitation:

(a)   All Tangible Personal Property;

(b)   All Accounts Receivable that are not Excluded Accounts Receivable;

(c)   Cash or cash equivalents;

(d)   All Contracts that are not Excluded Contracts (the “ Assigned Contracts ”);

(e)   All Permits relating to the acquisition or ownership of the Purchased Assets or the operation of the Business;

(f)   All data, records, files, manuals, blueprints and other documentation related to Seller, the Purchased Assets and the operation of the Business including without limitation: (i) client files and records; (ii) sales promotion materials, creative materials, art work, photographs, public relations and advertising material, studies, reports, correspondence and other similar documents and records used in the Business, whether in electronic form or otherwise; (iii) all client, customer and supplier lists, telephone numbers and electronic mail addresses with respect to past, present or prospective clients, customers and suppliers; (iv) all accounting and tax books, ledgers and records and other financial records relating to the Business and the Purchased Assets; (v) all sales and credit records, catalogs and brochures relating to the Business, and purchasing records and records relating to suppliers; and (vi) subject to applicable Law, copies of all personnel records of all Persons who immediately prior to the Closing Date were Employees (whether part or full time); provided, that, Seller shall be entitled to keep a copy of all such materials set forth in (i) through (vi) above solely, to the extent necessary, for use by its legal and tax advisors;

(g)   All Intellectual Property owned or used in connection with the Purchased Assets or the Business;

(h)   All policies and procedures, methods of delivery of services, trade secrets, disks, drawings and specifications, market studies, consultants’ reports, prototypes, and all similar property of any nature, tangible or intangible, used in connection with the Business;

(i)   All goodwill incident to the Business, including the value of the name(s) associated with the Business which are transferred to Purchaser hereunder and the value of good customer relations;

 

 

(j)   All computers, Software Programs, automation systems, accounting systems, master disks of source codes, and other proprietary information owned or licensed, whether for general business usage (e.g., accounting, word processing, graphics, spreadsheet analysis, etc.), or specific, unique-to-the-business usage, and all computer operating, security or programming software, owned or licensed and used in the operation of the Business;

(k)   All Prepaid Expenses and security deposits;

(l)   All amounts reserved on Seller’s books and records in connection with any Assumed Liabilities;

(m)   All Insurance Policies and insurance benefits relating to the Purchased Assets or the Business; and

(n)   All other intangible assets (including all Claims, contract rights and warranty and product liability claims against third parties) relating to the Purchased Assets or the Business.

2.2   Excluded Assets

Notwithstanding anything to the contrary contained in Section 2.1 or elsewhere in this Agreement, the following Assets (collectively, the “ Excluded Assets ”) shall not be part of the sale and purchase contemplated hereunder, are excluded from the Purchased Assets, and shall remain the property of Seller after the Closing:

(a)   All minute books, membership interest records and limited liability company seals of Seller provided, however, that Purchaser shall have access to such books and records as is reasonably necessary after Closing during regular business hours and upon reasonable notice;

(b)   All Accounts Receivable for completed projects or the pro rata portion of projects that have been completed as of the Closing Date as set forth on Schedule 2.2(b) hereto (the “ Excluded Accounts Receivable ”);

(c)   The membership interests of Seller held in treasury;

(d)   The consideration paid to Seller pursuant to this Agreement;

(e)   Originals of all personnel records and other records that Seller is required by Law to retain in its possession and copies of all such documents set forth in Section 2.1(f)(i)-(vi);

(e)   All railroad and other tax credits due Seller or accruing to its benefit, if any, for matters occurring on or prior to the Closing Date;

(f)   The Excluded Contracts;

 

 

(g)   All claims, causes of action, choses in action, rights of recovery and rights of recoupment or set-off of any kind in favor of Seller or pertaining to, or arising out of, the Purchased Assets or relating to the Assumed Liabilities prior to the Closing Date;

(h)   All insurance benefits under insurance policies of or for the benefit of Seller, including rights and proceeds, arising from or relating to the Purchased Assets or the Assumed Liabilities prior to the Closing Date; and

2.3   Assumed Liabilities

Except for the Assumed Liabilities, (i) Seller shall transfer the Purchased Assets to Purchaser on the Closing Date free and clear of all Liabilities and all Liens, other than Permitted Encumbrances, and (ii) Purchaser shall not, by virtue of its purchase of the Purchased Assets, assume or become responsible for any Liabilities of Seller or any other Person. Upon and subject to the terms, conditions, representations and warranties of Seller and the Member contained herein, and subject to Section 2.4, Purchaser hereby assumes and agrees to pay, perform, and discharge when due only the following (collectively referred to hereinafter as the “ Assumed Liabilities ”):

(a)   the Liabilities of Seller under the Assigned Contracts that, by the terms of such Contracts, arise after the Closing, relate to periods following the Closing and are to be observed, paid, performed or discharged, as the case may be, in each case at any time after the Closing Date; and

(b)   the Liabilities accrued on the Books and Records on the Closing Date as set forth on Schedule 2.3, to the extent such liabilities arose in the ordinary course of business, including accrued payroll liabilities of Seller (the “Accrued Liabilities”).

2.4   Retained Liabilities

Except for the Assumed Liabilities, Purchaser shall not assume, and shall have no Liability for, any Liabilities, Taxes or Contracts of Seller or the Member of any kind, character or description, whether known or unknown, accrued, absolute, contingent or otherwise, it being understood that Purchaser is expressly disclaiming any express or implied assumption of any Liabilities other than the Assumed Liabilities. Notwithstanding Section 2.3 or any other provision contained herein, and regardless of whether any of the following may be disclosed to Purchaser or any of its Representatives or otherwise or whether Purchaser or any of its Representatives may have actual knowledge of the same, Purchaser shall not assume, and Seller shall pay, perform, and discharge when due and remain exclusively liable for the following (collectively, the “ Retained Liabilities ”):

(a)   any Liability that is not an Assumed Liability;

(b)   any Liability of Seller with respect to the Excluded Assets;

 

 

(c)   any Liability for or with respect to (i) any Taxes arising from or attributable to the operation of the Business or the ownership of any of the Assets prior to the Closing; (ii) any Taxes imposed on Seller or any Member as a result of the consummation of the Acquisition and the other transactions contemplated hereby; and (iii) any Taxes required to have been withheld;

(d)   any Liability of Seller, its Affiliates or ERISA Affiliates under the Benefit Plans, other than accrued liabilities arising in the ordinary course of business;

(e)   any Liability of Seller for Claims covered by Seller’s Insurance Policies arising out of any act or omission occurring or state of facts existing prior to the Closing, including without limitation, warranty claims, workers’ compensation (including Claims made in respect of any period during which Seller was a self-insurer), general liability, fire and property insurance policies, and any Liability of Seller for premiums which may be due or are payable under any such insurance policy;

(f)   any Liability under any Assigned Contract which arises after the Closing Date but which arises out of or relates to any actual or alleged breach of such Contract occurring prior to the Closing Date;

(g)   any Liability relating to dividends, distributions, redemptions, or Security Rights with respect to any security or Membership Interest of Seller;

(h)   any Liability arising out of any transaction affecting Seller or Member, or obligations incurred by Seller or Member, after Closing;

(i)   any Liability against which Seller is otherwise indemnified;

(j)   any Liability of Seller to the Member or any Affiliate of Seller or the Member, including family members;

(k)   any Liability to employees of Seller, including Liabilities under any employment, severance, retention or termination agreement with any Member or any other employee of Seller or any of its Affiliates, other than liabilities for compensation and benefits incurred in the ordinary course of the Business;

(l)   any Liability arising out of or relating to any employee grievance with Seller whether or not the affected employees are hired by Purchaser;

(m)   any Liability to distribute to the Member or otherwise apply all or any part of the Purchase Price;

(n)   any Liability arising out of any Claims pending as of the Closing;

(o)   any Liability arising out of any Claims commenced after the Closing and arising out of, or relating to, any occurrence or event which happened prior to the Closing;

 

 

(p)   any Liability arising out of or resulting from Seller’s non-compliance with any Law; or

(q)   any Liability of Seller or the Member under this Agreement or any other document executed in connection with the Acquisition, including expenses or fees incident to or arising out of the negotiation, preparation, approval or authorization of this Agreement and the consummation of the Acquisition.

2.5   Purchase Price; Payment of Purchase Price; Adjustment

(a)   The aggregate consideration for the Purchased Assets shall be as follows (collectively, the “ Purchase Price ”):

(i)   Thirteen Million Nine-Hundred Forty Thousand Dollars ($13,940,000) in cash;

(ii)   Sixty Thousand Dollars ($60,000) in cash, which has been deposited into escrow (the “Escrowed Amount”) in accordance with the terms of that certain escrow agreement dated April 18, 2008 by and among Purchaser, Seller and Kohrman Jackson & Krantz, P.L.L., a copy of which is attached hereto as Exhibit D (the “Escrow Agreement”);

 

(iii)   a subordinated promissory note in substantially the form attached hereto as Exhibit E , having a principal amount of One Million Dollars ($1,000,000), bearing an interest rate of eight percent (8%) per annum (the “ Note ”); and

 

(iv)   the assumption of the Assumed Liabilities; provided, however;

(v)   Purchaser may elect to decrease the cash payment required by Section 2.5(a)(i) to Thirteen Million Four-Hundred Forty Thousand Dollars ($13,440,000) and increase the amount of the Note to One Million Five-Hundred Thousand Dollars ($1,500,000) if, and only if, the Closing does not occur before September 30, 2008.

(b)   The Purchase Price shall be (i) decreased on a dollar-for-dollar basis by the Accrued Liabilities (excluding any Accrued Liabilities included in the definition of Seller’s Working Capital), (ii) increased on a dollar-for-dollar basis up to $200,000 for one half of Capital Expenditures made by Seller from October 4, 2007 through the Closing Date and set forth on attached Schedule 2.5(b) , (iii) increased by any remaining amounts of holdbacks, deposits, or bonds currently benefiting the Seller for jobs not completed by the Closing Date which are assigned to Purchaser and set forth on attached Schedule 2.5(b) , (iv)  increased by $25,900 for the amount previously paid by Seller to perform an audit of Seller as of September 30, 2007, and (v) increased or decreased, as the case may be, on a dollar-for-dollar basis, to the extent that Seller’s Working Capital on the Closing Date exceeds or is less than $500,000 (such amount being hereinafter referred to as the “ Working Capital Target ” and the increase or decrease in the Purchase Price being hereinafter referred to as the “ Working Capital Adjustment Amount ”). The Working Capital Adjustment Amount shall be determined and paid as follows:

(i)   Seller shall provide to Purchaser a preliminary closing date balance sheet as of a date not earlier than three business days prior to the Closing Date and, at the Closing, the Purchase Price will be increased or decreased, as the case may be, by the Working Capital Adjustment Amount calculated on the basis of such preliminary closing date balance sheet (the “ Preliminary Working Capital Adjustment Amount ”).

 

 

(ii)   As soon as practicable, and in any event within one hundred and twenty (120) days following the Closing, Purchaser shall prepare and deliver to Seller the Closing Balance Sheet, a calculation of Seller’s Working Capital on the Closing Date based on such Closing Balance Sheet (the “ Closing Working Capital Calculation ”) and all work papers and back-up materials relating thereto. The Closing Balance Sheet and the Closing Working Capital Calculation shall be conclusive and binding on the parties hereto unless Seller gives written notice of any objections thereto setting forth in reasonable detail the amounts in dispute and the basis for such dispute (a “ Purchase Price Objection Notice ”) to Purchaser within thirty (30) days after its receipt of the Closing Balance Sheet and the Closing Working Capital Calculation. If Seller delivers a Purchase Price Objection Notice as provided above, the Parties shall attempt in good faith to resolve such dispute, and any resolution by them as to any disputed amounts shall be final, binding and conclusive on the Parties. If the Parties are unable to resolve, despite good faith negotiations, all disputes reflected in the Purchase Price Objection Notice within thirty (30) days thereafter (the “ Purchase Price Resolution Period ”), then the Parties will, within ten (10) days after the expiration of the Purchase Price Resolution Period, submit any such unresolved dispute to the Independent Accounting Firm. Purchaser and Seller shall provide to the Independent Accounting Firm all work papers and back-up materials relating to the unresolved disputes requested by the Independent Accounting Firm to the extent available to Purchaser or its Representatives or Seller or its Representatives. Purchaser and Seller shall be afforded the opportunity to present to the Independent Accounting Firm any material related to the unresolved disputes and to discuss the issues with the Independent Accounting Firm. The determination by the Independent Accounting Firm, as set forth in a notice to be delivered to Purchaser and Seller within thirty (30) days after the submission of the unresolved disputes to the Independent Accounting Firm, shall be final, binding and conclusive on the Parties. The fees and expenses of the Independent Accounting Firm shall be split equally between Seller and Purchaser. Seller’s Working Capital reflected in the Closing Working Capital Calculation, as revised to reflect the resolution of any and all disputes by the Parties and/or the Independent Accounting Firm, shall be deemed to be Seller’s Working Capital and the difference between Seller’s Working Capital and the Working Capital Target shall be the final Working Capital Adjustment Amount.

(iii)   If the final Working Capital Adjustment Amount is greater than the Preliminary Working Capital Adjustment Amount, Purchaser shall pay to Seller the difference between the final Working Capital Adjustment Amount and the Preliminary Working Capital Adjustment Amount (such difference being the “ Final Adjustment Amount ”) by wire transfer of immediately available funds to a bank account designated by Seller. If the final Working Capital Adjustment Amount is less than the Preliminary Working Capital Adjustment Amount, Seller and/or the Member shall pay to Purchaser the Final Adjustment Amount by wire transfer of immediately available funds to a bank account designated by Purchaser. Any Final Adjustment Amount shall be paid within five Business Days after the calculation of the Closing Working Capital becomes binding and conclusive on the Parties.

(c)   The cash portion of the Purchase Price (excluding the Escrowed Amount), as adjusted in accordance with Section 2.5(b)(i), shall be paid by Purchaser at the Closing via wire transfer of immediately available funds to an account specified by Seller.

 

 

(d)   The Escrowed Amount shall be paid at Closing in accordance with the terms of the Escrow Agreement.

(e)   The Note shall be executed and delivered to Seller at Closing.

(f)   The Final Adjustment Amount shall be paid in accordance with Section 2.5(b)(iii).

2.6   Allocation of Purchase Price

The Purchase Price shall be allocated as set forth on Schedule 2.6. Purchaser and Seller agree to reflect such allocation on IRS Form 8594: Asset Acquisition Statement under Section 1060, including any required amendments or supplements thereto (“ Form 8594 ”), in the form attached hereto as Exhibit A . Form 8594 shall be prepared jointly by Purchaser and Seller and shall be signed by the Parties on the Closing Date and timely filed by them. The Parties hereto further agree that: (i) the agreed upon allocation of Purchase Price shall be used in filing all required forms under Section 1060 of the Code and all Tax Returns; and (ii) they will report the transactions contemplated by this Agreement for Tax purposes in a manner consistent with such allocation.

2.7   Closing . 

(a)   The consummation of the purchase and sale of the Purchased Assets in accordance with this Agreement (the “ Closing ”) shall take place at 10:00 a.m., local time, at the offices of Kohrman Jackson & Krantz PLL, 1375 East Ninth Street, One Cleveland Center, 20th Floor, Cleveland, Ohio 44114-1793, on the later to occur of: (i) August 30, 2008 (or September 30, 2008 if extended pursuant to Section 8.1(a) below); or (ii) the third Business Day after all of the conditions precedent to Closing hereunder shall have been satisfied or waived, or at such other time and place as the Parties shall agree in writing. The date of the Closing shall be referred to as the “ Closing Date .” The Parties hereby agree to deliver at the Closing such documents, certificates of officers and other instruments as are set forth in Article VII hereof and as may reasonably be required to effect the transfer by Seller of the Purchased Assets pursuant to and as contemplated by this Agreement and to consummate the Acquisition. All events which shall occur at the Closing shall be deemed to occur simultaneously.

(b)   Subject to satisfaction or waiver by the relevant party of the relevant conditions to Closing, at the Closing, (i) the cash portion of the Purchase Price (as adjusted pursuant to Section 2.5(b)) shall be paid by Purchaser in accordance with Section 2.5(c); and (ii) the Purchased Assets and Assumed Liabilities shall be transferred by Seller to Purchaser.

2.8   Transfer Taxes

All sales and use taxes, documentary, state, county and local transfer taxes and recording taxes arising as a result of the Acquisition shall be paid by the Purchaser.

 

 

2.9   Consents

Seller shall promptly request and use its commercially reasonable efforts to obtain consent to the assignment to Purchaser of all Assumed Contracts requiring consent (collectively, the “Contract Consents”). If any Contract Consent is not obtained, such Assumed Contract shall not be assigned to Purchaser. Seller shall, to the extent practicable, keep the relevant Assumed Contract in effect through its remaining term (with no obligation to renew) and give Purchaser the full and exclusive rights and benefits of such Assumed Contract to the same extent as if it had not been excluded from the Assets and as if Purchaser was directly a party thereto (including, without limitation, promptly remitting or causing to be remitted to Purchaser all payments, and forwarding or causing to be forwarded to Purchaser all deliverables, correspondence, goods, invoices, claims, information, requests or any other materials received by Seller from any other parties to each such Assumed Contract), and Purchaser shall perform the obligations under such Assumed Contract on behalf of Seller to the extent set forth in such Assumed Contract as if such Assumed Contract had been assigned to Purchaser. In addition, Seller shall not enter into, or negotiate to enter into, any amendment, extension, termination, modification, cancellation, assignment, transfer or renewal of any such Assumed Contract, or grant any waiver thereunder, or compromise or settle any amount receivable or payable arising thereunder, without the prior written consent (not to be unreasonably withheld) or at the written instruction of Purchaser; provided, that, in no event shall Seller be obligated to extend or renew any such Assumed Contract. In addition, Seller shall cooperate with Purchaser to take such actions as may be reasonably requested by Purchaser to enforce each such Assumed Contract for the benefit of Purchaser, including, without limitation, enforcement of rights arising out of breach or cancellation of any such Assumed Contract and shall take such other actions in respect of any such Assumed Contract as Purchaser may reasonably request, in any such case at Purchaser’s expense. If after the Closing Date such Contract Consent is obtained, Purchaser shall assume such Assumed Contract as of the date of such Contract Consent. Nothing in this Agreement shall be construed as an attempt to assign any agreement or other instrument that is by its terms nonassignable without the consent of the other party thereto. In the event that a party to any Contract deems the performance by the Purchaser, but not the assignment to Purchaser, to be a default under such Contract, this alleged breach shall not be deemed a breach of any representation, warranty, covenant, or other term or provision of this Agreement by the Seller. In addition, with respect to the performance and surety bonds of Seller with respect to certain Assigned Contracts, it has advised Purchaser that Purchaser can not take over such performance or surety bonds of Seller and, to the extent Purchaser wishes to maintain such Assigned Contracts, it has been advised that it needs to obtain new bonds. Seller shall terminate its existing surety and performance bonds and Purchaser shall obtain appropriate replacement bonds at Closing. The parties agree to cooperate with one another in good faith to ensure a smooth transition relating to the surety and performance bonds.

ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER AND THE MEMBER

As an inducement to Purchaser to enter into this Agreement and to consummate the Acquisition, Seller and the Member, jointly and severally, represent and warrant to Purchaser that each of the following representations and warranties is true and correct as of the date hereof and will be true as of the Closing Date (as if each such representation and warranty was remade on the Closing Date).

 

 

3.1   Organization and Qualification

Seller is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite power and authority, limited liability company or otherwise, to own, lease and operate its properties and to carry on the Business as it is now being conducted. Seller is duly qualified or licensed to do business, and is in good standing, in each jurisdiction where the character of the properties owned, leased or operated by it or the nature of the Business makes such qualification or licensing necessary.

3.1.1   Capitalization

As of the date hereof, all of the membership interests of the Seller (the “ Seller Membership Interests ”) issued and outstanding are validly issued, fully paid and nonassessable and are owned beneficially and of record by the Member. There are no other equity securities of Seller issued or outstanding. There are no preemptive rights, options, warrants, membership interest appreciation rights (or other securities that have their value tied to any other securities of Seller), or other Security Rights, agreements, arrangements or commitments of any character to which Seller is a party or by which Seller is bound relating to the issued or unissued equity interests of Seller or obligating Seller to issue or sell any membership interests, or other equity interests in, Seller. There are no outstanding contractual obligations of Seller to repurchase, redeem or otherwise acquire any Seller Membership Interests. There are no outstanding contractual obligations of Seller to provide funds to, or make any investment (in the form of a loan, capital contribution or otherwise) in, any entity or Person.

3.1.2   Subsidiaries

Seller does not own or have an interest in any Subsidiaries.

3.1.3   Articles of Organization and Operating Agreement

The copies of Seller’s Articles of Organization and operating agreement previously provided to Purchaser by Seller are true, complete and correct copies thereof. Such Articles of Organization and operating agreement are in full force and effect. Seller is not in violation of any of the provisions of its Articles of Organization or operating agreement.

3.2   Authority Relative to this Agreement

Seller has all necessary power and authority to execute and deliver this Agreement and the other Transaction Documents to which it is a party, to perform its obligations hereunder and to consummate the Acquisition. The execution and delivery of this Agreement and the other Transaction Documents by Seller and the consummation by Seller of the Acquisition have been duly and validly authorized by all necessary limited litability company action, and no other proceedings on the part of Seller are necessary to authorize this Agreement or to consummate the Acquisition. This Agreement and the other Transaction Documents have been or will be duly executed and delivered by Seller and each constitutes a legal, valid and binding obligation of Seller, enforceable against Seller in accordance with its terms, subject to the effect of any applicable bankruptcy, moratorium, insolvency, reorganization or other similar law affecting the enforceability of creditors’ rights generally and to the effect of general principles of equity which may limit the availability of remedies (whether in a proceeding at Law or in equity) (the “ Bankruptcy Exception ”).

 

 

3.3   No Conflict

Except as set forth on Schedule 3.3 , the execution and delivery of this Agreement by Seller does not, and the performance by Seller of its obligations hereunder and the consummation of the Acquisition will not: (i) violate any provision of the Articles of Organization or operating agreement of Seller or any resolutions adopted by the managers or members of Seller; (ii) assuming that all filings and notifications described in Section 3.4 have been made, conflict with or violate any Law or Order applicable to Seller or by which any of the Purchased Assets or Seller is bound or affected, except where such conflict or violation would not have a Material Adverse Effect; or (iii) result in any breach of or constitute a default (or an event which with the giving of notice or lapse of time or both could reasonably be expected to become a default) under, or give to others any right of termination, amendment, acceleration or cancellation of, or result in the creation of a Lien on any of the Purchased Assets or Seller pursuant to, any note, bond, mortgage, indenture, Contract, agreement, lease, license, permit, franchise or other instrument or obligation.

3.4   Required Filings and Consents

To the Knowledge of Seller, the execution and delivery of this Agreement by Seller does not, and the performance by Seller of its obligations hereunder and the consummation of the Acquisition will not, require any consent, approval, authorization or permit of, or filing by Seller with or notification by Seller to, any Governmental Authority or any other Person, except for the consents, approvals, authorizations, declarations or rulings set forth on Schedule 3.4 .

3.5   Financial Statements

Seller has previously furnished to Purchaser true and complete copies of: (i) audited consolidated financial statements of Member (“ Parent ”), Seller’s direct parent, and Seller at and for the fiscal years ended December 31, 2006 and December 31, 2007 prepared by Horne LLP (the “ Audited Statements ”); (ii) Seller’s unaudited financial statements at and for the six month period ended June 30, 2008 (the “ Unaudited Statements ” and, together with the Audited Statements, the “ Seller Financial Statements ”); and (iii) all management letters and attorney response letters issued in connection with the Seller Financial Statements. The Seller Financial Statements have been prepared in accordance with GAAP, consistently applied. Each of the Seller Financial Statements presents fairly the financial position of Seller as of the applicable date and the results of operations for the period then ended. Each balance sheet contained in the Seller Financial Statements fully sets forth all Assets and Liabilities of Seller existing as of the applicable date which, under GAAP, should be set forth therein, and each statement of profit and loss contained therein sets forth the items of income and expense of Seller which should appear therein under GAAP. The Seller Financial Statements have been prepared in a manner consistent with Seller’s and Parent’s past practices and present fairly the financial position of Seller as of the applicable date and results of operations for the period then ended, all in accordance with GAAP, subject to the absence of statements of retained earnings and cash flows, the absence of footnote disclosures and subject to normal year end adjustments for interim financial statements.

 

 

3.6   Absence of Undisclosed Liabilities

Except as and to the extent reflected in the balance sheets included in the Seller Financial Statements (the “ Latest Balance Sheet ”) and as otherwise set forth in this Agreement, Seller did not have, as of June 30, 2008 (the “ Latest Balance Sheet Date ”), any Liabilities (other than obligations of continued performance under Contracts and other commitments and arrangements entered into in the ordinary course of the Business), and except as described on Schedule 3.6 , Seller has not incurred any Liabilities since the Latest Balance Sheet Date, except: (i) current Liabilities for trade or business obligations incurred in the ordinary course of the Business and consistent with past practice; and (ii) obligations of continued performance under Contracts and other commitments and arrangements entered into in the ordinary course of the Business. All Seller Debts are listed on the Latest Balance Sheet.

3.7   Accounts Receivable

Except to the extent of the amount of the reserve for doubtful accounts reflected in the Latest Balance Sheet or as set forth on Schedule 3.7 , all Accounts Receivable of Seller reflected therein and all Accounts Receivable that have arisen since the Latest Balance Sheet Date (except Accounts Receivable that have been collected since such date) are valid and enforceable claims, and constitute bona fide Accounts Receivable resulting from the sale of goods and services in the ordinary course of the Business. To the Knowledge of Seller, the Accounts Receivable are not subject to any valid defense, offsets, returns, allowances or credits of any kind, and neither Seller nor Member has any reason to believe the Accounts Receivable are not fully collectible within sixty (60) days of the due date. Except for the Accounts Receivable, Seller has not made any loan or advance to any Person.

3.8   Absence of Certain Changes or Events

Since the Latest Balance Sheet Date, except as contemplated by this Agreement or disclosed on Schedule 3.8 , Seller has conducted the Business in the ordinary course consistent with past practice and there has not been:

(a)   Any materially adverse change in the Business, or any event, occurrence or circumstance that could reasonably be expected to cause a Material Adverse Effect;

(b)   Any event that could reasonably be expected to prevent or delay the performance of Seller’s obligations pursuant to this Agreement and the consummation of the Acquisition;

(c)   Any change by Seller in its accounting methods, principles or practices;

(d)   Any redemption, purchase or other acquisition of any of Seller’s securities;

 

 

(e)   Except for changes in the ordinary course of the Business consistent with past practice, any increase or material modification in the compensation or benefits or establishment of any bonus, insurance, severance, deferred compensation, pension, retirement, profit sharing, option (including the granting of membership interest options, membership interest appreciation rights, performance awards or restricted membership interest awards), membership interest purchase or other employee benefit plan, or any other increase in the compensation payable or to become payable to any employees, officers, managers consultants or directors of Seller;

(f)   Any issuance or sale of any membership interests, notes, bonds or other securities or any option, warrant or other right to acquire the same;

(g)   Any amendment to Seller’s Articles of Organization or operating agreement;

(h)   Any damage, destruction or other casualty loss (whether or not covered by insurance), condemnation or other taking affecting the Purchased Assets;

(i)   Any incurrence of any Liability (absolute or contingent), except for current Liabilities incurred in the ordinary course of the Business in accordance with past practice;

(j)   Any transaction with respect to the purchase, acquisition, lease, sale, disposition or transfer of any Purchased Assets or to any Capital Expenditure (in each case, other than in the ordinary course of the Business in accordance with past practice) or creation of any Lien on any of the Purchased Assets;

(k)   Any failure to maintain the Purchased Assets consistent with past practices in a manner consistent with other companies in the Business;

(l)   Any material   modification, termination, waiver, amendment or other alteration or change in the terms or provisions of any Permit that may reasonably be expected to have a Material Adverse Effect on the Business or any Material Contract;

(m)   Any discharge or satisfaction of any Lien, or payment of any material Liabilities, other than in the ordinary course of the Business consistent with past practice, or failure to pay or discharge when due any Liabilities, the failure to pay or discharge of which has caused or will cause any actual damage or risk of loss to Seller; or

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

3.9   Properties; Title .

(a)   Seller does not own any real property. The leasehold estates described on Schedule 3.9(a) are all of the leasehold estates under which Seller is a lessee (or sublessee) of any real property or interest therein (collectively, the “ Real Property Leases ”). No proceeding is pending or, to Seller’s Knowledge, threatened for the taking or condemnation of all or any portion of the property demised under the Real Property Leases. Seller owns good and marketable title to the leasehold estates and to the Real Property Leases, free and clear of any Liens, except for real property Taxes, if any affecting properties of which the premises demised under the Real Property Leases form a part, not yet due and payable (“ Permitted Encumbrances ”). There is no brokerage commission or finder’s fee due from Seller and unpaid with regard to any of the Real Property Leases, or which will become due at any time in the future with regard to any Real Property Lease.

 

 

(b)   To the Knowledge of Seller, Seller is not in violation of any easements, rights of way or licenses and has not received notice of any such violation.

(c)   To the Knowledge of Seller, (i) the premises demised under the Real Property Leases and any other properties and assets owned, leased or used by Seller in the operation of the Business, including the walls, ceilings and other structural elements of any improvements erected on any part of the properties demised under the Real Property Leases thereon and the building systems such as heating, plumbing, ventilation, air conditioning and electric, are adequate and sufficient for the current operations of the Business, and (ii) such properties now being used by Seller in the Business are in good working order, repair and operating condition, are without any structural defects other than minimal structural defects which do not materially impair the use of such properties, and have been maintained in accordance with generally accepted industry practices. Notwithstanding the foregoing, the all of the underlying property being assigned to Purchaser pursuant to the Real Property Leases is being assigned on an “ AS IS ” and “ WHERE IS ” without any representation or warranty either expressed, implied or imposed by law.

(d)   Seller has good and marketable title to all Tangible Personal Property, a true, correct and complete description of which is set forth on Schedule 3.9(d) . All Tangible Personal Property is free and clear of all Liens including any claim that the acquisition of such property by Seller constituted a fraudulent conveyance. The Tangible Personal Property is adequate and sufficient for the current operations of the Business, and such properties now being used by Seller in the Business, whether leased or owned, are in good working order, usual wear and tear excepted, and have been maintained in accordance with generally accepted industry practices. The Tangible Personal Property is all of the tangible personal property owned or leased by Seller and used in the Business.

(e)   Seller has the right of ingress and egress, through a public road or street, to and from each of the parcels comprising each of the premises demised under the Real Property Leases. To the Knowledge of Seller, no utility easement or right of way which services any portion of the premises demised under the Real Property Leases may be terminated by the owner or mortgagee of any property through which any such easement or right of way runs.

3.10   Intellectual Property .

(a)   The term “ Intellectual Property ” means, collectively, all worldwide:

(i)   inventions, designs, algorithms and other industrial property, and all enhancements and improvements thereto, whether patentable or unpatentable and whether or not reduced to practice, an