ASSET PURCHASE AGREEMENT

Asset Purchase Agreement

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BAYWOOD INTERNATIONAL INC | BAYWOOD NEW LEAF ACQUISITION, INC | SKAE BEVERAGE INTERNATIONAL, LLC

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Title: ASSET PURCHASE AGREEMENT
Governing Law: Arizona Date: 9/15/2008
Industry: Personal and Household Prods. Sector: Consumer/Non-Cyclical

Exhibit 10.1

ASSET PURCHASE AGREEMENT

by and among

BAYWOOD INTERNATIONAL, INC.,

BAYWOOD NEW LEAF ACQUISITION, INC.,

SKAE BEVERAGE INTERNATIONAL, LLC

and

ERIC SKAE

Dated as of September 9, 2008

Page

ARTICLE I Certain Definitions

ARTICLE II Purchase and Sale

2.1

Purchase and Sale .

2.2

Excluded Assets .

2.3

Assumed Liabilities .

2.4

Excluded Liabilities .

2.5

Purchase Price .

2.6

Earn-Out Payment .

2.7

Closing .

2.8

Instruments of Transfer .

ARTICLE II Representations and Warranties of Company and Skae

3.1

Organization and Good Standing .

3.2

Authorization .

3.3

No Conflicts; Consents .

3.4

Financial Statements .

3.5

No Undisclosed Liabilities .

3.6

Taxes .

3.7

Property .

3.8

Title to and Sufficiency of Purchased Assets.

3.9

Intellectual Property .

3.10

Contracts and Agreements .

3.11

Insurance .

3.12

Litigation .

3.13

Compliance with Law; Licenses .

3.14

Employees .

3.15

Employee Benefit Plans .

3.16

Environmental Matters .

3.17

Bank Accounts and Powers of Attorney .

3.18

Absence of Certain Changes .

3.19

Books and Records

3.20

Transactions with Affiliates

3.21

Customers and Suppliers .

3.22

Brokers and Finders .

3.23

Restrictions on Company Business Activities .

3.24

Accounts Payable .

3.25

Accounts Receivable .

3.26

Full Disclosure .

ARTICLE IV Representations and Warranties of Buyer and Baywood

4.1

Organization and Good Standing .

4.2

Authorization .

4.3

No Conflicts; Consents .

4.4

Litigation .

4.5

Brokers and Finders .

4.6

Public Filings .

4.7

Capital Stock .

4.8

Issuance of Shares .

ARTICLE V Covenants of Company and Skae

5.1

Normal Course .

5.2

Conduct of Company Business.

5.3

Access to Information .

5.4

Efforts to Satisfy Conditions .

5.5

Notification of Certain Matters.

5.6

Confidentiality .

5.7

Non-Competition .

5.8

Non-Solicitation .

5.9

Non-Disparagement .

5.10

Enforcement; Injunctive Relief

5.11

Name Change .

5.12

Update of Disclosure Schedule .

5.13

Preparation of Audited Financial Statements .

5.14

Registration of Motor Vehicles .

ARTICLE VI Covenants of Buyer and Baywood

6.1

Efforts to Satisfy Conditions .

6.2

Notification of Certain Matters .

6.3

Confidentiality .

6.4

Election as Director .

6.5

Contribution of Working Capital .

6.6

10b Trading Plan

6.7

Vehicle Payments

6.8

Future Financing

6.9

Accrued Vacation

ARTICLE VII Covenants of all Parties

7.1

Further Assurances .

7.2

Certain Filings .

7.3

Assignment of Purchased Assets.

7.4

Public Announcements .

7.5

Certain Tax Matters .

7.6

Transfer Taxes .

7.7

Receipt of Payments on Accounts Receivable .

7.8

Legends .

ARTICLE VIII Conditions to Closing

8.1

Conditions Precedent to Obligations of Each Party .

8.2

Conditions Precedent to Obligations of Buyer and Baywood .

8.3

Conditions Precedent to Obligations of Company and Skae .

ARTICLE IX Survival; Indemnification

9.1

Survival .

9.2

Indemnification .

9.3

Procedures; No Waiver; Limitations .

ARTICLE X Termination of Agreement

10.1

Conditions for Termination .

10.2

Effect of Termination .

ARTICLE XI Miscellaneous

11.1

Expenses .

11.2

Entire Agreement .

11.3

Notices .

11.4

Amendment .

11.5

Waiver .

11.6

Counterparts; Facsimile .

11.7

Assignment; Binding Nature; No Beneficiaries .

11.8

Headings .

11.9

Governing Law .

11.10

Dispute Resolution .

11.11

Construction .

11.12

Agreement .

11.13

Remedies Cumulative .

11.14

Severability .

ASSET PURCHASE AGREEMENT

THIS ASSET PURCHASE AGREEMENT (this “ Agreement ”), dated as of September 9, 2008, is by and among Baywood International, Inc., a Nevada corporation (“ Baywood ”), Baywood New Leaf Acquisition, Inc., a Nevada corporation and a wholly owned subsidiary of Baywood (“ Buyer ”), Skae Beverage International, LLC, a Delaware limited liability company (“ Company ”), and Eric Skae, an individual (“ Skae ”).

WHEREAS, Company currently operates a business consisting of arranging for the manufacture of, marketing, distributing and selling of beverages;

WHEREAS, Skae is the sole member of and owns all of the outstanding equity interests of Company; and

WHEREAS, Buyer wishes to purchase from Company and Company wishes to sell to Buyer substantially all of the rights and assets of the Company Business (as defined below) other than the Excluded Assets (as defined below).

NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements hereinafter set forth, the parties hereto, intending to be legally bound, hereby agree as follows:

ARTICLE I

Certain Definitions

“Accrued Skae Vacation” has the meaning set forth in Section 6.9.

“ Accounts Payable ” has the meaning set forth in Section 2.3(c).

“ Accounts Receivable ” has the meaning set forth in Section 2.1(c).

“ Affiliate ” shall mean a Person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the Person specified. For purposes of this definition, the terms “control,” “controlled by” and “under common control with” shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person and, in the case of an entity, shall require (a) in the case of corporate entities, direct or indirect ownership of at least a majority of the stock or shares having the right to vote for the election of directors, and (b) in the case of non-corporate entities, direct or indirect ownership of at least a majority of the equity interest with the power to direct the management and policies of such non-corporate entities.

“ Assumed Contracts ” shall mean the specific contracts, licenses and agreements listed in Exhibit 2.1(j) .

“ Assumed Liabilities ” has the meaning set forth in Section 2.3.

“ Agreement ” has the meaning set forth in the preamble.

“ Balance Sheets ” has the meaning set forth in Section 3.4.

“ Baywood ” has the meaning set forth in the preamble.

“ Baywood Bridge Note ” means the bridge note dated May 14, 2008 pursuant to which Baywood made a loan to Company in the principal amount of Two Hundred Thousand Dollars ($200,000).

“ Business Day ” means any day that is not a Saturday or Sunday or a legal holiday on which banks are authorized or required by law to be closed in New York, New York.

“ Buyer ” has the meaning set forth in the preamble.

“ Buyer Indemnified Parties ” has the meaning set forth in Section 9.2(a).

“ Cash ” has the meaning set forth in Section 2.1(c).

“ Cash Flow Statements ” has the meaning set forth in Section 3.4.

“ Claim Dispute Notice ” has the meaning set forth in Section 9.3(a).

“ Claim Notice ” has the meaning set forth in Section 9.3(a).

“ Closing ” has the meaning set forth in Section 2.7(a).

“ Closing Balance Sheet ” means the balance sheet of Company which is to be prepared by Buyer following the Closing to describe the assets, liabilities and equity ownership of the Company as of the opening of business on the Closing Date.

“ Closing Date ” has the meaning set forth in Section 2.7(a).

“ COBRA ” has the meaning set forth in Section 3.15(g).

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

“ Company ” has the meaning set forth in the preamble.

“ Company Business ” means the research, design, development, creation, marketing, distribution and sale of any of the products of Company, including, without limitation, non-alcoholic iced tea beverages under the “New Leaf” brand, and the business, operations and assets associated with Company.

“ Company Indemnified Parties ” has the meaning set forth in Section 9.2(b).

“ Company Persons ” means those employees, consultants and advisers of Company who have in the past been or are engaged in, or otherwise involved with, the Company Business.

“ Confidential Information ” means any and all information, whether technical, business, proprietary, financial or otherwise, of or relating to a party, its Affiliates or its business that reasonably appears to be proprietary or confidential in nature because of legends or other markings, the nature of the information itself or the circumstances of disclosure, whether such information is disclosed in writing, through electronic media, orally, visually or in any other form.

“ Consideration Shares ” has the meaning set forth in Section 2.5(b)(iv).

“ Contracts ” has the meaning set forth in Section 3.10(a).

“ Convertible Promissory Notes ” means the Convertible Promissory Note and the Convertible Promissory Note ($100,000).

“ Convertible Promissory Note ” means that certain convertible promissory note, dated as of the Closing Date, in the principal aggregate amount of One Million Dollars ($1,000,000), payable to Company or its assignees by Baywood, in the form attached hereto as Appendix A .

“ Convertible Promissory Note ($100,000) ” means that certain convertible promissory note, dated as of the Closing Date, in the principal aggregate amount of One Hundred Thousand Dollars ($100,000), payable to Company or its assignees by Baywood, in the form attached hereto as Appendix B .

“ Creditor Release and Cancellation Acknowledgements ” means the written acknowledgements of the release and cancellation in favor of Baywood, Buyer, the directors, officers, shareholders, employees and agents of Baywood and Buyer and the respective affiliates of each such releasee in the form attached hereto as Appendix C , executed by each of the parties set forth on Exhibit 2.5(a) .

“ Damages ” has the meaning set forth in Section 9.2(a).

“ Disclosure Schedule ” means the disclosure schedules accompanying this Agreement.

“ Distributor List ” means a list of all Persons who have been authorized by Company to sell products as a distributor since January 1, 2006.

“ Employee Benefit Plan ” has the meaning set forth in Section 3.15(a).

“ Employment Agreement ” means the employment agreement by and between Baywood and Skae, which has been or will be executed and delivered on or after the execution and delivery of this Agreement and which shall become effective as of the Closing, in the form attached hereto as Appendix D .

“ Encumbrance ” means any lien (other than a lien for Taxes not yet due and payable for which an adequate reserve has been established), pledge, mortgage, security

interest, charge, restriction, adverse claim against specific property or other encumbrance of any kind or nature whatsoever.

“ Environmental Laws ” has the meaning set forth in Section 3.16.

“ Environmental Liabilities ” has the meaning set forth in Section 3.16.

“ Equipment ” has the meaning set forth in Section 2.1(a).

“ ERISA ” has the meaning set forth in Section 3.15(a).

“ ERISA Affiliate ” has the meaning set forth in Section 3.15(a).

“ Excluded Assets ” means all the assets described in Section 2.2 as not being transferred to Buyer.

“ Excluded Contracts ” has the meaning set forth in Section 2.2(c).

“ Excluded Liabilities ” has the meaning set forth in Section 2.4.

“ Financial Statements ” has the meaning set forth in Section 3.4.

“ GAAP ” means U.S. generally accepted accounting principles, as in effect on the date of this Agreement, consistently applied.

“ Governmental Body ” means any governmental or regulatory body, agency, authority, commission, department, bureau, court, tribunal, arbitrator or arbitral body public or private, or political subdivision, whether federal, state, local or foreign.

“ Hazardous Materials ” has the meaning set forth in Section 3.16.

“ Income Statements ” has the meaning set forth in Section 3.4.

“ Indemnified Party ” has the meaning set forth in Section 9.3(a).

“ Indemnifying Party ” has the meaning set forth in Section 9.3(a).

“ Intellectual Property ” means all intellectual property owned, used or licensed (as licensor or licensee) by Company for use, or that has been used, or that may be used, in the Company Business, or in any product, technology or process currently or formerly offered by Company, or currently under development or planned by Company, including:

(i)

all copyright interests in any original work of authorship, whether registered or unregistered, including but not limited to all copyright registrations, all applications for registration, all moral rights, all common-law rights, and all rights to register and obtain renewals and extensions of copyright registrations, together with all other copyright interests accruing by reason of international copyright convention (“ Copyrights ”);

(ii)

all patents (including certificates of invention and other patent equivalents), provisional applications, patent applications and patents issuing therefrom as well as any division, continuation or continuation in part, reissue, extension, reexamination, certification, revival or renewal of any patent, all Inventions and subject matter related to such patents, in any and all forms ( “Patents ”);

(iii)

all trademarks, trade dress, service marks, trade names, icons, logos, slogans, and any other indicia of source or sponsorship of goods and services, designs and logotypes related to the above, in any and all forms, all trademark registrations and applications for registration related to such trademarks (including, but not limited to intent to use applications), and all goodwill related to the foregoing (“ Trademarks ”);

(iv)

all domain name registrations (“ Domain Names ”) ;

(v)

any formula, design, device or compilation, or other information which is used or held for use by a business, which gives the holder thereof an advantage or opportunity for advantage over competitors which do not have or use the same, and which is not generally known by the public which has been identified and protected under the Uniform Trade Secret Act (“ Trade Secrets ”). Trade Secrets can include, by way of example, formulas, algorithms, market surveys, market research studies, information contained on drawings and other documents, and information relating to research, development or testing;

(vi)

novel devices, processes, compositions of matter, methods, techniques, observations, discoveries, apparatuses, machines, designs, expressions, theories and ideas, whether or not patentable;

(vii)

scientific, financial, marketing or practical knowledge or experience useful in the operation of the Company Business;

(viii)

any and all computer programs and/or software programs (including all source code, object code, firmware, programming tools and/or documentation) and all content contained on Internet site(s);

(ix)

all machine readable databases and compilations and any and all data and collections of data, wherever contained;

(x)

all documentation and media constituting, describing or relating to the above, including memoranda, manuals, technical specifications and other records wherever created throughout the world; and

(xi)

the right to sue for past, present, or future infringement and to collect and retain all damages and profits related to the foregoing.

“ IRS ” means the U.S. Internal Revenue Service.

“ Law ” means any federal, state, local or foreign law (including common law), statute, code, ordinance, rule, regulation, permit, order or other requirement or guideline.

“ Licenses ” has the meaning set forth in Section 3.13(b).“ Material Adverse Effect ” means any material adverse effect on the business, operations, assets, condition (financial or otherwise), liabilities, results of operations or prospects of Company, on the one hand, or Buyer or Baywood, on the other hand.

“ Middlebury ” means Middlebury Equity Partners, LLC.

“ Middlebury Termination ” means a termination letter executed by Middlebury acknowledging the satisfaction and discharge of all outstanding obligations between Middlebury and Company and the cancellation of any and all Company warrants, in each case as contemplated by that certain Termination and Settlement Agreement dated April 1, 2008, by and amongst Company, Skae and Middlebury.

“ Middlebury Termination Payoff Amount ” means $74,395.23.

“ Person ” means an individual, partnership, venture, unincorporated association, organization, syndicate, corporation, limited liability company, or other entity, trust and trustee, executor, administrator or other legal or personal representative or any government or any agency or political subdivision thereof.

“ Pre-Closing Accounts Receivable ” has the meaning set forth in Section 7.7.

“ Pre-Closing Tax Period ” means (i) all taxable periods ending on or before the Closing Date and (ii) the portion ending on the Closing Date of any taxable period that includes (but does not begin or end on) the Closing Date.

“ Prime Rate ” means the “prime rate” as reported by The Wall Street Journal from time to time, such rate being based on corporate loans posted by at least seventy five percent (75%) of the nation’s thirty (30) largest banks.

“ Purchase Price ” has the meaning set forth in Section 2.5.

“ Purchased Assets ” means all those assets, both tangible and intangible, to be transferred pursuant to this Agreement, as set forth in Section 2.1.

“ Promissory Notes (Skae Creditor) ” means promissory notes, dated as of the Closing Date, payable by Baywood to those persons in those amounts listed on Exhibit 2.5(a) , in the form attached hereto as Appendix G.

“Qualified Financing” has the meaning set forth in Section 6.8.

“ Representatives ” of a Person means such Person’s directors, officers, employees, agents, consultants and other representatives.

“ Required Consents ” has the meaning set forth in Section 7.3.

“ Restriction Period ” has the meaning set forth in Section 5.7(a).

“ Returns ” means returns, reports, and information statements with respect to Taxes required to be filed with the IRS or any other Governmental Body, domestic or foreign, including consolidated, combined and unitary tax returns, and returns required in connection with any Employee Benefit Plan.

“ Revenues ” means bona fide revenues that are recognized in accordance with Buyer’s revenue recognition policies under GAAP.

“ SEC ” means the U.S. Securities and Exchange Commission.

“ SEC Documents ” has the meaning set forth in Section 4.7.

“ Shares ” means the shares of common stock, par value $.001 per share, of Baywood.

“Spring Bridge Notes” means those certain promissory notes issued by Baywood to certain investors in April and May, 2008 in an aggregate principal amount of Eight Hundred and Thirty Thousand ($830,000) Dollars.

“ 2008 Balance Sheet ” has the meaning set forth in Section 3.5.

“ Tax ” or “ Taxes ” means any and all taxes, fees, levies, duties, tariffs, imposts and governmental impositions or charges of any kind in the nature of (or similar to) taxes, payable to any federal, state, local or foreign Governmental Body, including, without limitation, (i) income, franchise, profits, gross receipts, ad valorem , net worth, value added, sales, use, service, real or personal property, special assessments, capital stock, license, payroll, withholding, employment, social security, workers’ compensation, unemployment compensation, utility, severance, production, excise, stamp, occupation, premiums, windfall profits, transfer and gains taxes, and (ii) interest, penalties, additional taxes and additions to tax imposed with respect thereto.

“ Third Party Claim ” has the meaning set forth in Section 9.3(b).

“ Transaction Documents ” means this Agreement and the Employment Agreement.

“ Transfer Taxes ” has the meaning set forth in Section 7.6. “ U.S. ” means the United States of America.

“ Vehicles ” means (i) two 2005 Honda Elements and (ii) one 2003 BMW 325i.

ARTICLE II

Purchase and Sale

2.1

Purchase and Sale .

Upon and subject to the terms and conditions hereof, at the Closing, Company shall sell, transfer and assign to Buyer, and Buyer shall purchase and acquire from Company, all of Company’s right, title and interest in and to the assets and rights of every kind, nature and description, real, personal and mixed, tangible and intangible, wherever located, owned, held, used or licensed by Company or in which Company has an interest as of the Closing Date (other than the Excluded Assets, which are being retained by Company), in each case free and clear of all Encumbrances except for the Assumed Liabilities. Without limiting the generality of the foregoing, the Purchased Assets include the following as of the Closing:

(a)

all furnishings, furniture, office and other supplies, vehicles, spare parts, tools, machinery, equipment and other tangible personal property of any kind (collectively, the “ Equipment ”), including, without limitation, all of the Equipment listed on Exhibit 2.1(a) ;

(b)

all items of inventory notwithstanding how classified in the financial records of Company, including, without limitation, raw materials, work-in-process, finished goods, supplies, packaging, spare parts and samples;

(c)

all (i) accounts, accounts receivable and notes receivable (whether short-term or long-term) from unaffiliated third parties or Affiliates of Company and all deposits with unaffiliated third parties or Affiliates, together with any unpaid interest, finance charges and fees accrued thereon from the respective obligors and any security or collateral therefor, including recoverable deposits and advances, so long as such accounts, accounts receivable or notes receivable from or deposit with an Affiliate resulted from trade activity between the Affiliate and Buyer (collectively, the “ Accounts Receivable ”), including, without limitation those receivables listed on Exhibit 2.1(c) , and (ii) cash and cash equivalents (together, the “ Cash ”) ;

(d)

all Intellectual Property, including, without limitation, the items listed on Exhibit 2.1(d) ;

(e)

the right to defend against claims made that any of the Intellectual Property infringes the intellectual property rights of any third party;

(f)

the right to prosecute all patent applications and maintain all patent rights included in the Intellectual Property;

(g)

all Company Business records, risk management records, accounting statements and records, customer records and sales history with respect to customers, sales and marketing records, lists of data providers and component manufacturers, documents, correspondence, studies, reports, and all other books, ledgers, files, and records of every kind (other than Returns and related work papers), tangible data, Distributor Lists, e-mail lists, vendor lists, service provider lists, promotional literature and advertising materials, catalogs, research material, technical information, (in each case, whether such materials are evidenced in writing, electronically, or otherwise);

(h)

all goodwill associated with the name and the business of Company and all of Company’s rights (both legal and equitable), claims or causes of action to protect its rights and interest with respect to its assets, properties, customers and former customers;

(i)

to the extent transferable, all Licenses, including, without limitation, the items listed on Exhibit 2.1(i) ;

(j)

all rights, title and interest in and to the contracts, licenses and agreements listed on Exhibit 2.1(j) (collectively, the “ Assumed Contracts ”);

(k)

all rights of recovery and rights of set-off of any kind (except to the extent related to Excluded Liabilities);

(l)

all prepaid expenses and deposits;

(m)

telephone numbers (including all rights in customer service telephone lines), websites and domain names associated with the Company Business, all as listed on Exhibit 2.1(m) ;

(n)

all computer code and database technology (including source code, html or other mark-up language, embedded programs or graphics related to the Company Business, including, without limitation, all computer code related to the Company web page(s) and databases, which code shall in each case be transferred in a format reasonably acceptable to Buyer, and in a manner capable of reproducing on another website all source code and all web pages utilized in the Company Business or owned by Company);

(o)

all data provided from third parties or clients and used in the Company Business;

(p)

the name “New Leaf” or any variant thereof; and

(q)

subject to Section 6.7, all rights, title and interest in and to the Vehicles; and

(r)

all other assets of Company (whether real or personal, tangible or intangible, absolute or contingent) relating to the Company Business, other than the Excluded Assets.

2.2

Excluded Assets .

The Excluded Assets shall include the following:

(a)

the name “Skae Beverage International, LLC”;

(b)

those items listed on Exhibit 2.2(b) and all books and records exclusively related thereto;

(c)

any minute books, stock records or other data relating to Company’s ownership or operation of the Company Business which are part of Company’s general corporate books and records or required by applicable Law to be retained by Company;

(d)

all rights of Company arising under those contracts listed on Exhibit 2.2(d) (the “ Excluded Contracts ”); and

(e)

any Contracts, licenses or permits which may not be transferred without the consent, novation, waiver or approval of a third party or entity, unless such consent, novation, waiver or approval has been duly obtained or receipt of which has been waived by Buyer; provided , however , that Baywood and the Buyer each hereby waive any obligation on the Company to obtain consents from the Company’s various beverage distributors.

2.3

Assumed Liabilities .

Buyer shall assume and agree to perform the Assumed Liabilities, effective as of the Closing Date set forth below. The “ Assumed Liabilities ” shall mean:

(a)

all liabilities of Company arising under the Assumed Contracts (other than liabilities or obligations attributable to any failure by Company to comply with the terms thereof or liabilities of, and any omissions or negligence on the part of, Company prior to the Closing Date);

(b)

Buyer’s portion of any Taxes pursuant to Sections 7.5 and 7.6;

(c)

all accounts payable relating to the Company Business (“ Accounts Payable ”) which are included on the Closing Balance Sheet including, without limitation, those listed on Exhibit 2.3(c);

(d)

all liabilities of Company arising under the Baywood Bridge Note; and,

(e)

any and all credits, rebates and/or payments that, in the ordinary course of the Company’s business relating to sales, promotions, marketing or other similar programs conducted by the Company prior to Closing (the “ Distributor Credits ”).

2.4

Excluded Liabilities .

Company shall be responsible for payment and performance of, and agrees to pay and perform, and be solely responsible for all (and Buyer shall not have any responsibility with respect to any) obligations other than the Assumed Liabilities (the “ Excluded Liabilities ”). Without limiting the generality of the foregoing, Company shall be responsible for payment and performance of, and agrees to pay and perform, and be solely responsible for all of (and Buyer shall not have any responsibility with respect to any of) the following:

(a)

all liabilities related to the payment of wages, salaries and the provision of benefits, including severance, accrued vacation and sick leave, to Company Persons

who are not retained as employees of Baywood or Buyer immediately following the Closing Date;

(b)

all liabilities arising under any Environmental Law (excluding any such liabilities to the extent created by Buyer’s operation of the Company Business after the Closing);

(c)

all current liabilities including, without limitation, all accounts payable and wages and salaries payable, which are not included on the Closing Balance Sheet;

(d)

all liabilities in any way relating to Excluded Contracts;

(e)

except as set forth in Section 7.5, any Tax liabilities for any Pre-Closing Tax Period;

(f)

any liabilities arising from any work-related injury to any employee or former employee of Company (excluding any such liabilities created by Buyer’s operation of the Company Business after the Closing);

(g)

all current liabilities related to the payment of premiums and other payments with respect to the insurance policies set forth in Section 3.11 of the Disclosure Schedule and the Employee Benefit Plans set forth in Section 3.15(a) of the Disclosure Schedule; and

(h)

all other liabilities that arise up to and including the Closing Date which are not Assumed Liabilities.

2.5

Purchase Price .

(a)

The consideration for the transfer of the Purchased Assets and the Company Business to Buyer by Company shall be (i) Buyer’s delivery at Closing of Promissory Notes in the aggregate principal amount of $One Million Dollars (1,000,000) to those persons and in those amounts listed on Exhibit 2.5(a) , (ii) the payment to Company of Two Million Eight Hundred Thousand Dollars ($2,800,000) (the “ Purchase Price ”), and (iii) if earned, the payment to Skae of deferred purchase price (the “Earnout Payment” ) on the one hundred and twentieth day following the first, second and third anniversaries of the Closing Date (each an “Earnout Payment Date” ) in the manner set forth and in the amounts determined in accordance with Section 2.6.

(b)

Payment of the Purchase Price shall be made on the Closing Date (or, in the case of clause (iv) below, within ten (10) days of the Closing Date) as follows:

(i)

Four Hundred Thousand Dollars ($400,000) in cash, by wire transfer of immediately available funds to an account(s) designated by Company;

(ii)

One Million Dollars ($1,000,000), by delivery to Company or its assignee of a Convertible Promissory Note, payable to Company or its assignee;

(iii)

One Hundred Thousand Dollars ($100,000), by delivery to Company or its assignee of a Convertible Promissory Note ($100,000), payable to Company or its assignee;

(iv)

One Million Three Hundred Thousand Dollars ($1,300,000), by delivery of One Million Four Hundred and Forty-Four Thousand Four Hundred and Forty-Four (1,444,444) Shares to Company (the “ Consideration Shares ”); provided , however , that the stock certificate representing the Consideration Shares shall be delivered within ten (10) days of the Closing Date.

(c)

Adjustment of Convertible Promissory Notes . The Convertible Promissory Notes shall be subject to Buyer’s rights of offset in the manner and to the extent set forth in the Convertible Promissory Notes.

2.6

Earn-Out Payment .

(a)

Within ninety (90) days after each of the first three (3) twelve (12) month anniversaries of September 30, 2008 (each such anniversary, an “Earnout Reference Date” ), Buyer shall calculate the Earnout Payment Amount (as defined in Section 2.6(b) below) for the twelve (12) month period ended on such Earnout Reference Date (each such twelve (12) month period, a “Reference Year”; the first, second and third Reference Years, respectively, are herein referred to as the “First Reference Year” , the “Second Reference Year” and the “Third Reference Year” ) and shall provide Skae with a written notice detailing such Earnout Payment Amount and the calculation thereof (an “ Earnout Notice ”). Subject to Sections 2.6(f) and (g), Buyer shall pay Skae, in accordance with Section 2.6(e), an Earnout Payment on each Earnout Payment Date in an amount equal to the Earnout Payment Amount due and payable, if any, with respect to the applicable Reference Year; provided , however , that Buyer shall in no event pay to Skae any amounts under this Section 2.6, regardless of the form of payment, in excess of $4,776,100 in the three-Reference Year aggregate (inclusive of the $500,000 earnout bonus payment described in Section 2.6(c)). Any Earnout Payment made pursuant to this Section 2.6 shall be treated for all Tax purposes as an adjustment to the Purchase Price (subject to the requirements of Section 483 of the Code).

(b)

For purposes of this Agreement:

(i)

“Actual Gross Sales Delta” means, with respect to a particular Reference Year, the increase in Gross Sales during such Reference Year compared with the twelve (12) month period ended September 30, 2008.

(ii)

“Actual Gross Margin” means, with respect to a particular Reference Year, Cost of Goods Sold as a percentage of Gross Sales.

(iii)

“Actual Versus Target Gross Margin” means, with respect to a particular Reference Year, the quotient of (X) Actual Gross Margin divided by (Y) Target Gross Margin, expressed as a percentage.

(iv)

“Actual Versus Target Gross Sales Delta” means, with respect to a particular Reference Year, the quotient of (X) Actual Gross Sales Delta divided by (Y) Target Gross Sales Delta, expressed as a percentage.

(v)

“Actual Versus Target Gross Sales and Gross Margin Average” means, with respect to a particular Reference Year, the average of (X) the Actual Versus Target Gross Margin and (Y) Actual Versus Target Gross Sales Delta, expressed as a percentage.

(vi)

“Cost of Goods Sold” means, with respect to a particular Reference Year, cost of goods sold attributable to the Company Business, determined in accordance with GAAP.

(vii)

“Earnout Payment Amount” means, with respect to a particular Reference Year, the Reference Year Commission with respect to such Reference Year times the product of (X) the Gross Sales Delta Target with respect to such Reference Year and (Y) the Actual Versus Target Gross Sales and Gross Margin Average.

(viii)

“Gross Sales ”, means, with respect to a particular Reference Year, the gross sales of the Buyer attributable to the Company Business, determined in accordance with GAAP.

(ix)

“Reference Year Commission” means, (i), with respect to the First Reference Year, 10%, (ii), with respect to the Second Reference Year, 8% and (iii), with respect to the Third Reference Year, 6%.

(x)

“Target Gross Margin” means (i), with respect to the First Reference Year, 19.6%, (ii), with respect to the Second Reference Year, 33.9% and (iii), with respect to the Third Reference Year, 37.2%.

(xi)

“Target Gross Sales Delta” means (i), with respect to the First Reference Year, $3,440,891, (ii), with respect to the Second Reference Year, $15,360,295 and (iii), with respect to the Third Reference Year, $21,297,005.

Schedule 2.6(b) sets forth a series of examples showing various Earnout Payment Amount scenarios using a variety of Actual Gross Sales Delta and Actual Gross Margin results.

(c)

In the event that aggregate Earnout Payment Amounts earned by Skae is equal to or exceeds $2,850,733, Buyer shall pay Skae an earnout bonus payment in the amount of $500,000, due and payable on the third Earnout Payment Date in cash.

(d)

Within ten (10) days after receiving an Earnout Notice, Skae may, at his option, by providing written notice to Buyer, elect to convert all or part of any Earnout Payment Amount due on such Earnout Payment Date from cash into Shares at a conversion price equal to:

(i)

in respect of any Earnout Payment relating to the First Reference Year, $1.00 per Share;

(ii)

in respect of any Earnout Payment relating to the Second Reference Year, $1.50 per Share; and

(iii)

in respect of any Earnout Payment relating to the Third Reference Year, $2.00 per Share;

provided, however, that the conversion prices set forth in Clauses (i), (ii) and (iii) above shall be ratably adjusted to take into account any stock splits, reverse stock splits, consolidations or other similar actions taken by Baywood with respect to its outstanding capital stock.

(e)

Each Earnout Payment, if any, shall be paid by delivery from Buyer to Company, or its assignee, of certificates representing any amount of Shares which Skae has elected to receive pursuant to Section 2.6(d) and, in respect of any remaining balance of such Earnout Payment, a promissory note in a form reasonably satisfactory to Company, or its assignee, with interest payable at the Prime Rate plus two percent (2%) calculated on the basis of a 360 day year and:

(i)

in respect of any Earnout Payment relating to the First Reference Year, payment in four (4) equal quarterly installments commencing on the date which is three (3) months after the applicable Earnout Payment Date; and

(ii)

in respect of any Earnout Payment relating to the Second Reference Year, payment in four (4) equal quarterly installments commencing on the date which is three (3) months after the applicable Earnout Payment Date; and

(ii)

in respect of any Earnout Payment relating to the Third Reference Year, payment in twelve (12) equal quarterly installments commencing on the date which is three (3) months after the applicable Earnout Payment Date.

(f)

Upon the written request of Skae provided to Buyer no later than ten (10) business days following delivery of an Earnout Notice to Skae, Buyer and Baywood shall permit an independent certified public accounting firm of recognized standing selected by Skae to have access during normal business hours and for a period not exceeding ten (10) business days to such of the records of Buyer and Baywood as may be reasonably necessary to verify the accuracy of Buyer’s compliance with this Section 2.6 (the “Audit Right” ). The fees charged by such accounting firm shall be paid by Skae, except to the extent of an error greater than seven (7%) percent in which case such Baywood shall reimburse Skae for the reasonable fees and expenses of such audit. If such accounting firm concludes that the amount of any Earnout Payment made to Skae was incorrect, then, within ten (10) days of the date Skae deliver to Buyer and Baywood such accounting firm’s written report so concluding, Buyer or Skae, as applicable, shall remit such payment to the other party, together with interest from the date on which such unpaid amount was so payable at the rate per annum (adjusted quarterly) equal to the “prime rate” as reported by The Wall Street Journal , such rate being based on corporate loans posted by at least seventy five percent (75%) of the nation’s thirty (30) largest banks. The Audit Right may be exercised once each year and expires forty five (45) days from the Earnout Payment Date. Upon expiration of this twenty (20) day period without exercise of the Audit Right, the applicable Earnout Payment provided by Buyer shall be deemed correct. Skae’s accountant is not permitted to disclose to Skae any confidential information of the Buyer or Baywood, as the case may be, and must execute a non-disclosure agreement to the reasonable satisfaction of Baywood. Skae’s accountant may only report whether or not there is a discrepancy in the calculation of the applicable Earnout Payment and how much such discrepancy is.

(g)

The Buyer shall be entitled to offset against any Earnout Payment (i) any indemnification payments to which the Buyer becomes entitled pursuant to Section 9, and (ii) any payments owed by Skae to Buyer in respect of proration of Taxes pursuant to Section 7.5(c) that were not previously paid by Skae; provided , however , that such offset right shall terminate with respect Earnout Payments earned in any Reference Year three (3) months after the Earnout Payment Date applicable to each such Earnout Payment.

(h)

Notwithstanding anything to the contrary set forth in this Section 2.6 Skae shall not have the right to receive, and shall be deemed to have not earned, any Earnout Payment in the event that Skae is then in material breach of Section 5.7 (Non-Competition) of this Agreement and such material breach, if reasonably capable of being cured, remains uncured thirty (30) days after Skae’s receipt of written notice of such material breach from Buyer and/or Baywood.

(i)

Skae understands, acknowledges and agrees that Buyer and Baywood are each entitled to manage their respective businesses, including the Company Business, in their sole and absolute discretion. Skae further agrees that he shall not have any claim against the Buyer or Baywood, or any of their respective Affiliates, and neither Buyer nor Baywood, nor any of their respective Affiliates, will have any liability to Skae with respect to the management and operation of Buyer or Baywood, including any impact thereof on the payments, if any, to Skae pursuant to this Section 2.6. Notwithstanding the foregoing, neither Buyer nor Baywood shall act in bad faith in order to reduce the amount or delay the payment of any Earnout Payments. In furtherance and without limiting the foregoing, Skae understands,

acknowledges and agrees that because of the highly speculative nature of achieving the Earnout Payments, Skae has been advised by the Buyer and Baywood that he should not enter into this Agreement unless he is prepared to sell the Company Business for only the amount of the Purchase Price. Buyer and Baywood’s only obligations with respect to the Earnout Payments are to (1) calculate such payments, if any, and (2) not act in bad faith in order to reduce the amount or delay the payment of such Earnout Payments. Skae further acknowledges that he is not authorized to, and will not, take (and will not attempt to cause Buyer to take) any action in bad faith in order to increase the amount or accelerate the payments, if any, pursuant to this Section 2.6(a).

2.7

Closing .

(a)

The closing (the “ Closing ”) of the transactions contemplated by this Agreement shall take place at the offices of Hand Baldachin & Amburgey, LLP, 317 Madison Avenue, New York, New York 10017 as soon as possible, but in no event later than three (3) Business Days after satisfaction of the conditions set forth in Article VIII (the “ Closing Date ”), or at such other time or place as Buyer, Baywood and Skae may agree.

(b)

At the Closing:

(i)

Baywood and Buyer shall execute and deliver the Promissory Notes (Skae Creditor) to the Persons listed on Exhibit 2.5(a) , as set forth in Section 2.5(a)(i);

(ii)

Buyer shall deliver, or cause to be delivered, to Company the cash portion of the Purchase Price, as set forth in Section 2.5(b)(i);

(iii)

Buyer shall wire the Middlebury Termination Payoff Amount to Middlebury in connection with the execution and delivery by Middlebury of the Middlebury Termination to Company;

(iv)

Buyer shall execute and deliver to Company or its assignee the Convertible Promissory Notes, as set forth in Section 2.5(b)(ii);

(v)

Buyer shall execute and deliver to Company or its assignee the Convertible Promissory Note ($100,000), as set forth in Section 2.5(b)(iii);

(vi)

Baywood shall, on the Closing Date or within ten (10) days thereof, issue the Shares to Skae as set forth in Section 2.5(a)(v), and deliver to Skae a stock certificate representing the Consideration Shares;

(vii)

Intentionally deleted;

(viii)

Company shall deliver, or cause to be delivered, to Buyer and Baywood the Creditor Cancellation and Release Acknowledgements;

(ix)

to the extent not previously executed and/or delivered, Company and Skae shall execute and/or deliver, or cause to be executed and/or delivered, to Buyer and Baywood each Transaction Document and any other document, certificate or other instrument required to be executed and/or delivered by Company and Skae under this Agreement at or prior to the Closing; and

(ix)

to the extent not previously executed and/or delivered, Buyer and Baywood shall each execute and/or deliver, or cause to be executed and/or delivered, to Company and Skae each Transaction Document and any other document, certificate or other instrument required to be executed and/or delivered by Buyer and Baywood under this Agreement at or prior to the Closing.

2.8

Instruments of Transfer .

(a)

The transfer of the Purchased Assets to Buyer and assumption of the Assumed Liabilities by Buyer at the Closing shall be effected by the delivery of a Bill of Sale, Assumption Agreement and an Intellectual Property Assignment in recordable form, all in forms prepared by Buyer and reasonably acceptable to Company.

(b)

All tangible Purchased Assets transferred to Buyer at the Closing, including, without limitation, all books, papers, ledgers, documents and records (including, where available, electronic versions thereof) constituting part of the Purchased Assets, will be retained in the offices of Company in existence as of the Closing Date.

ARTICLE III

Representations and Warranties of Company and Skae

Except as disclosed in the Disclosure Schedule, Company and Skae, jointly and severally, hereby represent and warrant to Buyer and Baywood as follows:

3.1

Organization and Good Standing .

(a)

Company is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware and has full corporate power and authority to own its properties, to carry on its business as it is now being conducted and to carry out its obligations under this Agreement. Company is duly qualified to transact business and is in good standing in each jurisdiction wherein the nature of the business done or the property owned, leased or operated by it requires such qualification, except where the failure to be so qualified would not have a Material Adverse Effect. Copies of the organizational documents of Company and all amendments thereto have been delivered to Buyer and are true, complete and accurate in all respects. The company records of Company have been made available to Buyer and are all of the company records of Company. To the extent that any material transactions of Company are not documented in its records, such transactions have been duly authorized by all necessary corporate action on the part of Company and are otherwise

disclosed to the extent so required by other portions of this Agreement. The list of members and transfer records of Company have been made available to Buyer and are true, complete and accurate in all respects.

(b)

Skae is the sole member of and owns all of the outstanding equity interests of Company. There are not outstanding any options, warrants, rights (including conversion or preemptive rights) or agreements for the purchase or acquisition from Company of any equity interest in Company.

3.2

Authorization .

(a)

Company has the full legal right, power and authority to enter into and perform the transactions contemplated by this Agreement, without need for any consent, approval, authorization, license or order of, or notice or filing with, any Governmental Body or other Person. The execution, delivery and performance by Company of this Agreement and the other Transaction Documents to which Company is a party, and the consummation by it of the transactions contemplated hereby and thereby, are and have been duly and validly authorized and approved by all necessary company and member action on the part of Company. This Agreement has been duly executed and delivered by Company and constitutes, and the other Transaction Documents to which Company is a party, at the Closing, will be duly executed and delivered by Company and will each then constitute, a legal, valid and binding obligation of Company, enforceable against Company in accordance with their respective terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, moratorium or similar laws affecting the rights of creditors generally and by general principles of equity.

(b)

Skae represents that he has the full legal capacity to enter into and perform the transactions contemplated by this Agreement, and is not under any prohibition or restriction, contractual, statutory or otherwise, against doing so. Skae represents that this Agreement has been duly executed and delivered by Skae and constitutes, and the other Transaction Documents to which Skae is a party, at the Closing, will be duly executed and delivered by Skae and will each then constitute, a legal, valid and binding obligation of Skae, enforceable against Skae in accordance with their respective terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, moratorium or similar laws affecting the rights of creditors generally and by general principles of equity.

3.3

No Conflicts; Consents .

Neither the execution and delivery by Company or Skae of this Agreement or any of the Transaction Documents to which Company or Skae is or will be a party, nor the consummation by Company or Skae of the transactions contemplated hereby or thereby, will (i) conflict with or violate the organizational documents or operating agreement of Company or (ii) conflict with, violate, result in the breach of any term of, result in the acceleration of performance of any obligation under, constitute a default under, require the consent or approval of or any notice to or filing with any Person, or create an Encumbrance on any of the properties or assets of Company or Skae under, (x) any material note, mortgage, deed of trust, real property lease or other material agreement or instrument to which Company or Skae is a party or by which Company or Skae or any of their respective properties or assets are bound, (y) any

material Law or License, or (z) any material order, decree, writ, or injunction of any Governmental Body having jurisdiction over Company, Skae or any of their respective properties or assets.

3.4

Financial Statements .

Company has delivered to Buyer an audited balance sheet of Company for the fiscal year ended May 31, 2008 and shall, on or before the Closing Date, deliver to Buyer an unaudited balance sheet of Company for the three months ended August 31, 2008 (the “ Balance Sheets ”) and the related income statements (the “ Income Statements ”) and statements of members’ equity and cash flow for each of such periods then ended (the “ Cash Flow Statements ”, and together with the Balance Sheets and Income Statements, including the notes thereto, the “ Financial Statements ”), copies of which are attached hereto as Section 3.4 of the Disclosure Schedule. The Financial Statements have been prepared in accordance with GAAP, and present fairly, in all material respects, the financial position, results of operations and cash flow of Company as at the respective dates of and for the periods referred to in such Financial Statements.

3.5

No Undisclosed Liabilities .

Other than those set forth in Section 3.5 of the Disclosure Schedule or which are reflected or reserved against on the Balance Sheets, Company had no liabilities, debts or obligations (whether absolute, accrued, contingent or otherwise).

3.6

Taxes .

(a)

Company has timely filed with the appropriate Governmental Bodies all material Returns required to be filed by it and has paid on a timely basis all material Taxes (whether or not shown on any Return). The information on such Returns is complete and accurate in all material respects. There are no liens for Taxes (other than for current Taxes not yet due and payable for which an adequate reserve has been established) upon the Purchased Assets.

(b)

No unpaid deficiencies for Taxes have been claimed, proposed or assessed by any Governmental Body in writing with respect to Company that are still pending and there are no pending or, to the knowledge of Company and Skae, threatened, audits, investigations or claims or issued and outstanding assessments for Taxes of or with respect to Company. Company has not requested any extension of time within which to file any currently unfiled Returns and no extension of a statute of limitations relating to any Taxes is in effect with respect to Company.

(c)

(i) Each of Company and Skae has made or will make provision for all Taxes payable by it with respect to any Pre-Closing Tax Period which have not been paid prior to the Closing Date; (ii) such provision (excluding any reserve for deferred Taxes established to reflect timing differences between book and Tax income) is adequate to cover all unpaid Taxes of Company and/or Skae for all Pre-Closing Tax Periods; (iii) Company has withheld and paid all material Taxes required to have been withheld and paid in connection with

amounts paid or allocable to any employee, independent contractor, creditor or other third party; and (iv) to the knowledge of Company and Skae, Company is required to file an annual report only in the State of Delaware with state tax returns filed in New York, New Jersey and Pennsylvania, and at the federal level with the Federal Internal Revenue Service, and no written claim has ever been made by a Governmental Body in a jurisdiction where Company does not currently file Returns that Company is or may be subject to taxation by that jurisdiction.

(d)

Company is not liable for Taxes of any other Person and is not currently under any contractual obligation to or a party to any tax sharing agreement or any other agreement providing for payments with respect to Taxes.

(e)

Company has not entered into any sale leaseback or any leveraged lease transaction with respect to the Purchased Assets.

3.7

Property .

Company has good and marketable title to, or in the case of leased property, has valid leasehold interests in, all property and assets (whether real or personal, tangible or intangible) reflected on the Balance Sheets or acquired after June 30, 2008, except property or assets disposed of in the ordinary course of business after June 30, 2008. None of such properties or assets is subject to any Encumbrances, except:

(i)

Encumbrances disclosed on the Balance Sheets;

(ii)

liens for Taxes not yet due or being contested in good faith (and for which adequate accruals or reserves have been established on the Balance Sheets); or

(iii)

such imperfections of title, liens and easements as do not and will not materially detract from or interfere with the use of the properties subject thereto or affected thereby or otherwise impair business operations involving such properties (such items listed in (i) through (iii) being referred to as “ Permitted Encumbrances ”).

3.8

Title to and Sufficiency of Purchased Assets .

Following the Closing, Buyer will be the lawful owner of, and have good and valid title to, the Purchased Assets, free and clear of all Encumbrances except for Permitted Encumbrances and except for any Encumbrances on the Balance Sheets. Except as disclosed in Section 3.8 of the Disclosure Schedule, the Purchased Assets include all of the assets and properties necessary for, and all of the assets and properties used or held for use by Company or any other Person in the Company Business, as Company has operated the Company Business (or caused the Company Business to be operated on its behalf) prior to and as of the Closing Date. None of the Purchased Assets is in the possession, custody or control of any Person other than Company or the Company’s bottler in the ordinary course of the Company’s business. The tangible Purchased Assets are in good operating condition and repair (ordinary wear and tear excepted), are not in need of any material repair or material maintenance and will be in the

same condition on the date on which such Purchased Assets are to be transferred to Buyer (ordinary wear and tear excepted).

3.9

Intellectual Property .

(a)

Section 3.9(a) of the Disclosure Schedule lists (i) all issued Patents, and all pending applications for Patents, owned by Company; (ii) all registered Trademarks, and all pending applications for Trademarks, owned by Company; (iii) all registered Copyrights, and all pending applications for Copyrights, owned by Company; and (iv) all Domain Names owned by Company.

(b)

Company has good and valid title to, or otherwise possesses the rights to use, all Intellectual Property necessary to permit Buyer to operate the Company Business from and after the Closing Date, in the same manner as currently conducted by Company. Neither the consummation of the transactions contemplated by this Agreement nor Company’s performance hereunder will result in the diminution, license, transfer, termination or forfeiture of Company’s rights in the Intellectual Property. Except for Intellectual Property owned by third parties and licensed to Company, no Person other than Company has any right or interest of any kind or nature in or with respect to the Intellectual Property, or any portion thereof, or any rights to sell, license, lease, transfer or use or otherwise exploit the Intellectual Property or any portion thereof. To the knowledge of Company and Skae, there is no material infringement by third parties of any Intellectual Property. All officers, employees and contractors of Company who have created Intellectual Property, have executed an agreement with Company pursuant to which all rights, title and ownership in and to such Intellectual Property have been assigned to Company.

(c)

There: (i) is no pending or, to the knowledge of Company and Skae, threatened action, suit, proceeding or claim against Company challenging Company’s rights in or to any Intellectual Property; (ii) is no pending or, to the knowledge of Company and Skae, threatened action, suit, proceeding or claim by others challenging the validity or scope of any Intellectual Property owned by Company; (iii) is no pending or, to the knowledge of Company and Skae, threatened action, suit, proceeding or claim by others that Company infringed or otherwise violated any patent, trademark, copyright, trade secret or other intellectual property rights of others; (iv) is no patent or published patent application which contains claims that invalidate or may invalidate (A) any Patent owned by Company, or, (B) to the knowledge of Company and Skae, any Patents licensed by Company; in each such case where any such claim would have a Material Adverse Effect; and (v) is no prior art of which Company or Skae are aware that may render any Patent held by Company invalid or any patent application held by Company unpatentable which has not been disclosed to the U.S. Patent and Trademark Office or a foreign patent authority.

(d)

The Intellectual Property (including, to the knowledge of Company and Skae, the Intellectual Property of third parties licensed to Company), is free and clear of any and all Encumbrances.

(e)

Section 3.9(e) of the Disclosure Schedule sets forth all agreements by which Company is obligated to make to third parties any payments related to the Intellectual

Property. Company is not bound by an agreement by which it owes any present or future royalties or other payments to third parties in respect of Intellectual Property in excess of $10,000.

3.10

Contracts and Agreements .

(a)

Section 3.10(a) of the Disclosure Schedule sets forth a true, complete and accurate list of each of the following contracts, agreements, arrangements, instruments or understandings, whether oral or written, to which Company is a party or by which Company or its assets or properties are bound (collectively, the “ Contracts ”):

(i)

each employment or other similar agreement;

(ii)

(A) each management, consulting, retainer or other similar type of agreement under which services are provided by any Person to Company in excess of $25,000 per annum and (B) each agreement or commitment for services and supplies provided by any other Person to Company or requiring payments by Company of more than $25,000 per annum;

(iii)

each agreement that restricts in any manner the operation of the Company Business as presently conducted, including each agreement that restricts the ability of Company to solicit customers, employees or other service providers;

(iv)

each lease (as lessor, lessee, sublessor or sublessee) of any real property;

(v)

each lease (as lessor, lessee, sublessor or sublessee) of any tangible personal property requiring payment during its term or any extension or renewal thereof in excess of $25,000;

(vi)

each license (as licensor, licensee, sublicensor or sublicensee) of any Intellectual Property (other than customary, non-negotiated licenses of commercially available, “packaged, off the shelf” computer software);

(vii)

each agreement under which any money has been or may be borrowed or loaned, or any note, bond, factoring agreement, indenture or other evidence of indebtedness has been issued or assumed, and each guaranty (including “take-or-pay” and “keepwell” agreements) of any evidence of indebtedness or other obligation, or of the net worth, of any Person;

(viii)

each mortgage agreement, deed of trust, security agreement, purchase money agreement, conditional sales contract or capital lease involving in excess of $10,000;

(ix)

each partnership, joint venture or similar agreement;

(x)

each agreement or commitment to make unpaid capital expenditures in excess of $10,000;

(xi)

each agreement providing for registration of the capital stock of Company under the U.S. securities laws;

(xii)

each agreement containing a change of control provision;

(xiii)

each customer contract providing for payments to Company in excess of $10,000 per year;

(xiv)

each other agreement having an indefinite term or a fixed term of more than one (1) year or requiring payments by Company of more than $25,000 per year; and

(xv)

any other contract or commitment not made in the ordinary course of business that is material to the Company Business.

(b)

Each Contract is legal, valid, binding and in full force and effect and is enforceable by Company in accordance with their respective terms, except as such enforceability may be limited by bankruptcy, insolvency, moratorium and other similar laws affecting creditors’ rights generally and by general principles of equity. Company is not (with or without the lapse of time or the giving of notice, or both) in breach of or in default under any of the Contracts, and, to the knowledge of Company and Skae, no other party to any of the Contracts is (with or without the lapse of time or the giving of notice, or both) in breach of or in default under any of the Contracts. None of the Contracts has been terminated and Company and Skae are not aware of any intention or right of any party to default under any of the Contracts.

3.11

Insurance .

Section 3.11 of the Disclosure Schedule accurately lists (by type, carrier, policy number, limits, premium and expiration date) all insurance policies currently maintained by Company. Each such insurance policy is in full force and effect (free from any presently exercisable right of termination on the part of the insurance company issuing such policy prior to the expiration of the term of such policy) and all premiums due and payable in respect thereof have been paid. Each such insurance policy is in an amount customary for companies similarly situated. Company has not received notice of cancellation or non-renewal of any such policy. The transactions contemplated by this Agreement and the other Transaction Documents will not give rise to a right of termination of any such policy by the insurance company issuing the same prior to the expiration of the term of such policy.

3.12

Litigation .

Except as set forth in Section 3.12 of the Disclosure Schedule, there is no lawsuit, governmental investigation or legal, administrative or arbitration action or proceeding pending or, to the knowledge of Company and Skae, threatened against Company or any of its properties or assets, or any director, officer or employee of Company, in his or her capacity as such.

3.13

Compliance with Law; Licenses .

(a)

Company is and has been in material compliance in all respects with all applicable Laws, orders and decrees governing the conduct or operation of its business, and all of its Licenses. Company has not received any written notice of any violation of any such Law, order, decree or License, and to the knowledge of Company and Skae, no such violation has been threatened.

(b)

Section 3.13(b) of the Disclosure Schedule lists all governmental licenses, approvals, authorizations, registrations, consents, orders, certificates, decrees, franchises and permits (collectively, “ Licens

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