Indemnifying Party (as defined in Section 8.2(c)  below) pursuant to this Agreement and the amount of the Loss (as defined in Section 8.2(a)  below) with respect thereto, if then known.

 

(e)                                   “ Code ” shall mean the Internal Revenue Code of 1986, as amended.

 

(f)                                     “ Contracts ” shall mean any contracts, agreements and commitments, whether oral or written.

 

(g)                                  “ Environmental, Health and Safety Requirements ” shall mean all federal, state and local statutes, regulations, ordinances and other provisions having the force or effect of law, all judicial and administrative orders and determinations, all contractual obligations and all common law concerning public health and safety, worker health and safety, and pollution or protection of the environment, including, without limitation, all those relating to the presence, use, production, generation, handling, transportation, treatment, storage, disposal, distribution, labeling, testing, processing, discharge, release, threatened release, control, or cleanup of any hazardous materials, substances or wastes, chemical substances or mixtures, pesticides, pollutants, contaminants, toxic chemicals, petroleum products or byproducts, asbestos, polychlorinated biphenyls, noise or radiation, each as amended and as now or hereafter in effect.

 

(h)                                  “ ERISA ” shall mean the Employee Retirement Income Security Act of 1974, as amended.

 

(i)                                      “ GAAP ” shall mean United States generally accepted accounting principles in effect from time to time, consistently applied.

 

(j)                                      “ Indebtedness ” shall mean collectively all obligations or liabilities (whether accrued, absolute, contingent, unliquidated or otherwise, whether or not known, whether due or to become due and regardless of when asserted) arising out of transactions entered into at or prior to the Closing (as defined in Section 2.6 ), or any state of facts existing at or prior to the Closing, including (i) Taxes with respect to or based upon transactions or events occurring on or before the Closing and (ii) liabilities with respect to or based upon loans, indebtedness, promissory notes, debentures, deferred purchase price for property or services, capital lease obligations or similar obligations (or any guaranties of any of the foregoing).

 

(k)                                   “ Knowledge ,” or any similar term or knowledge qualification contained herein, shall mean (i) with respect to any individual, the actual knowledge of such Person after reasonable investigation, and (ii) in the case of any Person other than an individual, the actual knowledge of the current officers and directors of such Person.

 

(l)                                      “ Lease ” means that certain real property lease comprised of an original lease February 3, 2005, an Addendum dated February 3, 2005, an Amendment dated June 28, 2006, an Assignment and Assumption Agreement dated August 17, 2006, a Second Amendment dated May 17, 2007 and a Third Amendment dated on or about June 30, 2009 for Company’s existing facility located at 2101 N.W. Corporate Boulevard, Suite 410, Boca Raton, Florida 33431, comprising approximately 4,156 square feet of office space.  A copy of the Lease is attached as Exhibit A .

 

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(m)                                “ Lien ” shall mean any mortgage, pledge, conditional sale or other title retention agreement, encumbrance, lien, easement, option, debt, charge, claim, restriction, or other security interest of any kind.

 

(n)                                  “ Non-Competition Period ” shall mean the period beginning on the Closing Date and ending on the third anniversary of the Closing Date.

 

(o)                                  “ Person ” means an individual, a partnership, a corporation, a limited liability company, an association, a trust, a joint stock company, a joint venture, an unincorporated organization, any other business entity or a governmental entity (whether federal, state, county, city or otherwise and including, without limitation, any instrumentality, division, agency or department thereof).

 

(p)                                  “ Proprietary Rights ” means all of the following owned by, issued to, used by or licensed to the Company and used in the Business (whether pursuant to a written license or not), along with all associated income, royalties, damages and payments due from or payable by any third party (including, without limitation, damages and payments for past, present, or future infringements or misappropriations thereof), all other associated rights (including, without limitation, the right to sue and recover for past, present, or future infringements or misappropriations thereof), and any and all corresponding rights that, now or hereafter, may be secured throughout the world: (i) trademarks, service marks, trade dress, logos, slogans, UPC codes, trade names and corporate names and all registrations and applications for registration thereof, together with all goodwill associated therewith; (ii) copyrights and works of authorship, and all registrations and applications for registration thereof; (iii) computer software (including, without limitation, data, data bases and related documentation); (iv) trade secrets, confidential information, and proprietary data and information (including, without limitation, compilations of data (whether or not copyrighted or copyrightable), ideas, know how, marketing, information, financial and accounting data, business and marketing plans, and customer and supplier lists and related information); (v) internet sites and related code, graphics, assets and other properties related thereto as well as all rights associated therewith, including the Website located at www.alanjamesgroup.com ; (vi) all items set forth in Schedule 5.13 ; (vii) all other intellectual property rights; and (viii) all copies and tangible embodiments of the foregoing (in whatever form or medium).

 

(q)                                  “ Tax ” or “ Taxes ” means any federal, state, local or foreign income, gross receipts, franchise, estimated, alternative minimum, add on minimum, sales, use, transfer, registration, value added, excise, natural resources, severance, stamp, occupation, premium, windfall profit, environmental, customs, duties, real property, personal property, capital stock, social security, unemployment, disability, payroll, license, employee or other withholding, or other Tax, of any kind whatsoever, including any interest, penalties or additions to Tax or additional amounts in respect of the foregoing.

 

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

 

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ARTICLE II

PURCHASE AND SALE OF ASSETS

 

2.1                                      Purchase and Sale of Assets .

 

(a)                                   Purchased Assets .   Subject to the terms and conditions of this Agreement, on the Closing Date (as defined in Section 2.6 ), the Buyer agrees to purchase from the Company, and the Company agrees to sell, convey, assign, transfer and deliver to the Buyer by appropriate instruments reasonably satisfactory to the Buyer and its counsel, free and clear of all Liens, all of the Company’s right, title and interest in or to the assets, properties, rights, titles and interests of every kind and nature owned, licensed or leased by the Company and used in or related to the Business (including indirect and other forms of beneficial ownership) as of the Closing Date, whether tangible, intangible or personal and wherever located and by whomever possessed, including the Proprietary Rights, including, without limitation, all of the following assets, but excluding all of the Excluded Assets (collectively, the “ Purchased Asset s”):

 

(i)                                     the Company accounts, notes and other receivables (including net accounts receivable), including any prepayments and prepaid expenses, associated with those accounts identified on Schedule 2.1(a)(i)  as the “ Acquired Accounts ”;

 

(ii)                                 all inventory and related supplies of the Company identified on Schedule 2.1(a)(ii)  (collectively, “ Inventory ”);

 

(iii)                             all tangible assets of any kind, including all Fixed Assets identified in the NAV Schedule , together with the Accumulated Depreciation associated therewith (as such terms are set forth in the NAV Schedule ), and including those assets listed in Schedule 5.4 ;

 

(iv)                                all claims, deposits, prepayments, warranties, guarantees, refunds, causes of action, rights of recovery, rights of set off and rights of recoupment of every kind and nature related to the Purchased Assets (or not related to the “ Non-Acquired Accounts ,” as defined in Section 2.1(b)(ii)  below);

 

(v)                                    all rights existing under those purchase orders to purchase goods or products relating to the Business as listed on the attached Schedule 2.1(a)(v)  (collectively, the “ Assigned Purchase Orders ”);

 

(vi)                                all rights under any warranties and indemnification obligations (whether implied or express) received from suppliers to the extent they pertain to the Purchased Assets;

 

(vii)                            the right (but not the obligation) to hire any of the Company’s employees, consultants and independent contractors;

 

(viii)                        all Proprietary Rights, including electronic and hard copies of any custom software programs, data, web pages and all related underlying software and documentation;

 

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(ix)                               all permits, licenses, franchises, and other authorizations obtained from federal, state or local governments or governmental agencies or other similar rights, and all data and records pertaining thereto related to the Business (collectively, “ Government Licenses ”);

 

(x)                                   all insurance, warranty, litigation, class action and condemnation proceeds received after the date hereof with respect to damage, non conformance of or loss to the Purchased Assets, or which otherwise pertain to the Business or the activities conducted therefrom or in connection therewith, and all rights and proceeds under insurance policies to the extent related to or payable in connection with any of the Purchased Assets or the Assumed Liabilities, including those that arise under any certificates of insurance from suppliers or their insurers;

 

(xi)                               all rights to receive mail and other communications addressed to the Company related to the Business, except for communications related to the Excluded Assets;

 

(xii)                           all telephone and facsimile numbers related to the Business;

 

(xiii)                       customer lists, price lists and vendor lists and similar items related to the Business;

 

(xiv)                          copies of books, financial and other corporate records to the extent related to the Business;

 

(xv)                              all historical records, images, commercials, advertisements, brochures and similar items; and

 

(xvi)                          all goodwill of the Sellers associated with the Business, including the goodwill associated with existing customer relationships of the Business.

 

(b)                                  Excluded Assets .   The Company shall retain all of their right, title and interest in and to, and shall not transfer to the Buyer the following assets (collectively, the “ Excluded Assets ”):

 

(i)                                     all cash and cash equivalents on hand;

 

(ii)                                 all contracts, accounts receivable, obligations, liabilities, claims and  relationships associated with those accounts identified on the attached Schedule 2.1(b)  as the “ Non-Acquired Accounts ”;

 

(iii)                             the rights of Sellers pursuant to this Agreement;

 

(iv)                                the originals of books, financial and other corporate records related to the Business, including Tax Returns, stock and minute books, corporate seal and corporate records of Company (although Buyer shall have the right to request and receive copies of any of these);

 

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(v)                                    all Contracts, except the Lease and the Wakunaga Contract (defined below), provided that Sellers will communicate with Buyer prior to formally terminating material contracts and provide Buyer with the opportunity to comment on proposed termination notices and/or potentially decide to negotiate a new arrangement with the other party; and

 

(vi)                                all income tax installments paid by the Company and the right to receive any refund of income taxes paid by the Company.

 

2.2                                      Limited Assumption of Liabilities and Risks .

 

(a)                                   Liabilities.   Subject to the conditions specified in this Agreement, from and after the Closing, the Buyer shall assume and agree to pay, perform, discharge and satisfy, as and when due in accordance with their terms, only those liabilities and obligations of the Company associated with: (A) the Lease that pertain to periods after Closing, subject to the terms of the Assignment Agreement signed by Buyer with respect to the Lease; and (B) the Wakunaga Contract, as defined in Section 3.1(a)(ii) , subject to the terms of the Assignment Agreement signed by Buyer with respect to the same and to Section 3.1(a)(ii)  (the Lease and the Wakunaga Contract are hereafter the “ Assumed Liabilities ”).

 

(b)                                  Risks.   Subject to the conditions specified in this Agreement, from and after the Closing, after the Buyer and Seller have established GAAP reserves at Closing under Section 2.5(b)  below in connection with acquired accounts receivable and inventory, and these GAAP reserves have become an adjustment to the Estimated NAV at Closing, Buyer will assume the following risks (collectively, the “ Assumed Risks ”):

 

(i)                                     Accounts Receivable Risk :  Any risk that the accounts receivable purchased by Buyer which may be greater than the GAAP reserve established at Closing associated with the Acquired Accounts (the “ Accounts Receivable Risk ”) are not collectible (or will be reduced) due to:

 

(A)       Product Sales Returns,

 

(B)         Discontinued Product Returns,

 

(C)         Uncollectible or A/R > 90 days, and

 

(D)        Payment Term Discounts (2%),

 

It being understood that any question or issue regarding the definition of the foregoing terms should be resolved by referring to the usage of those terms by Buyer and Sellers in completing the Accounts Receivable Analysis attached at Schedule 2.2 ;

 

(ii)                                 Inventory Risk:   Any risk arising from Buyer and Sellers failure to properly analyze acquired inventory and establish adequate GAAP reserves at Closing and determine which inventory conforms to the GAAP requirements identified in Section 2.5(b)(ii)  below and “exclude” those items that did not conform to GAAP requirements as referenced on the Inventory Summary attached at Schedule 2.2 (the “ Inventory Risk ”),

 

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except that nothing herein shall operate to eliminate or modify the representations and warranties made by Sellers with respect to inventory in Article V of this Agreement, and Buyer is entitled to rely on labeling on packaging, boxes, and in Sellers’ tracking systems such that Buyer shall not be responsible if Sellers failed to properly label or identify inventory (such as relevant expiration or use by dates); and

 

(iii)                             Post-Closing Trade Promotion Risks: Subject to Section 2.3(b)(ii)  below, commitments, responsibilities, risks and liabilities related to trade promotions post-Closing (“ Post-Closing Trade Promotion Risks ”) specifically arising from credits taken or payments sought by customers related to those advertising, co-op advertising, coupons, promotional discounts, slotting fee arrangements, chargebacks and other trade promotions (collectively, “ Trade Promotions ”) that:

 

(A)       constitute arrangements or commitments entered into by Buyer, or

 

(B)         comprise that portion (if any) of those Pre-Closing Trade Promotion Risks (defined in Section 2.3(b)(ii)  below) that meet the following requirements (hereafter, “ Assumed Trade Promotions ”):

 

(a)           are identified as “Programs Post 7/1” under that heading on the Trade Promotion Analysis By Customer schedule attached at Schedule 2.2(b)(iii)  (the “ Potentially Assumed Trade Promotions ”), and

 

(b)          pertain specifically to and are sought by Acquired Accounts and arise directly from sales made by Buyer after Closing. it being understood that Sellers will remain responsible for all other or remaining Pre-Closing Trade Promotion Risks and Post-Closing Trade Promotion Risks, including but not limited to those that pertain to or arise from sales made by Sellers, or that pertain to Non-Acquired Accounts, or that are not Potentially Assumed Trade Promotions, whether or not disclosed.

 

PROVIDED, that if the Accounts Receivable Risk relates to or arises from a contract or commitment that was not disclosed to Buyer (i.e., that is not attached to or referenced in any of the schedules to this Purchase Agreement) or was otherwise intentionally withheld by Sellers, or if the Inventory Risk relates to or arises from a failure to properly label or track inventory on the part of Sellers or an intentional misrepresentation, then Sellers shall remain fully responsible for the same pursuant to Section 2.3(b)  below.

 

2.3                                      Excluded Liabilities .

 

(a)                                   Except for the Assumed Liabilities and the Assumed Risks, the Buyer shall not assume, and shall have no liability or obligation for any liabilities of any of the Sellers (collectively, the “ Excluded Liabilities ”), including liabilities or obligations of any of the Sellers arising out of or related to:

 

(i)                                     any other obligation required to be recorded on a balance sheet of the Sellers prepared in accordance with GAAP,

 

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(ii)                                 Taxes,

 

(iii)                             Indebtedness for borrowed money or deferred purchase price for property or services (including, without limitation, pursuant to any capital lease),

 

(iv)                                any amounts due to Affiliates or any intercompany or interbranch or interstore liabilities,

 

(v)                                    Excluded Assets,

 

(vi)                                any trade accounts payable by the Sellers, whether related to the Business or otherwise, which to the extent they relate to material suppliers of Company, shall be fully paid or satisfactorily resolved within seven (7) business days of Closing,

 

(vii)                            any accrued liabilities (including employee benefits, employee payroll taxes, vacation and sick leave payable, holiday pay, etc.), whether related to the Business or otherwise,

 

(viii)                        any present or former employees of the Company (including, without limitation, any Plan (as defined in Section 5.18 below)

 

(ix)                               any contract or arrangement with any Affiliates or

 

(x)                                   any default or breach of contract, breach of warranty, tort, infringement, violation of law or environmental matter (in each case, whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due).

 

(b)                                  Notwithstanding anything herein to the contrary,

 

(i)                                     Sellers shall remain liable for and shall promptly following notification address and resolve any liabilities, claims, returns, warranty issues or other problems involving the Non-Acquired Accounts; and

 

(ii)                                 Buyer will have no responsibility for, and Sellers will remain 100% responsible for (and will promptly reimburse Buyer for) and will fully indemnify and hold harmless Buyer from, any of the following items:

 

(A)       Trade Promotions : Commitments, responsibilities, risks and liabilities related to Trade Promotions that were entered into prior to Closing by Sellers or that otherwise pertain to periods prior to Closing identified as “Balance 6/30/09” under that heading on the Trade Promotion Analysis By Customer schedule attached at Schedule 2.2(b)(iii)  (“ Pre-Closing Trade Promotion Risks ”), even if disclosed to Buyer, as long as Sellers are notified of the same within two (2) years of the Closing Date, except with respect to that portion of such Pre-Closing Trade Promotion Risks that constitute Assumed Trade Promotions; and

 

(B)         Undisclosed Commitments :  any charges that relate to a commitment, contract or other item that Sellers did not disclose to Buyer (i.e., that is not attached

 

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to or referenced in any of the schedules to this Purchase Agreement) or that was intentionally withheld by Sellers.

 

Buyer’s right to reimbursement hereunder shall not be subject to any basket or deductible and shall be paid promptly by Sellers.  If not paid promptly, the amount owing shall bear interest at a rate of twelve percent (12%) per annum until paid in full and Buyer shall be entitled to reasonable attorneys’ fees and court costs if it must retain a lawyer to collect amounts owing hereunder.

 

2.4                                      Purchase Price for Purchased Assets .   In consideration for the Purchased Assets, the Buyer or Buyer Parent shall pay to the Sellers the purchase price (“ Purchase Price ”) of $4,160,000 for the Purchased Assets, consisting of $3,960,000 in cash (the “ Cash Purchase Price ”), subject to adjustment pursuant to Section 2.5 below and subject to the retention of $200,000 as a holdback (the “ Holdback Amount ”) pursuant to Section 2.7 below.  Other than the Holdback Amount, the Cash Purchase Price shall be payable on the Closing Date by wire transfer of immediately available funds to an account or accounts designated by Company.

 

2.5                                      Adjustments to Purchase Price .

 

(a)                                   Minimum NAV .   Sellers and Buyer have agreed that Company should have a net asset value as of the Closing Date, after giving effect to normal GAAP adjustments for reserves and except for routine reductions related to normal amortization and depreciation, equal to $1,521,795 (the “ Minimum NAV ”), which is the net asset value derived from the Company’s balance sheet as of December 31, 2008:

 

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NAV Calculation

 

		12/31/08			Adjustments (1)			Adjusted 12/31/08
Accounts Receivable		$	712,695		$	(138,758	)	$	573,937
Inventory		$	828,120					$	828,120
Prepaid
Expenses		$	14,957					$	14,957
Benefits		$	6,199		$	(6,199	)
Insurance		$	13,300		$	(13,300	)
Tax		$	13,000		$	(13,000	)
Trade Promo		$	25,000		$	(25,000	)
Rent		$	11,217					$	11,217
Inventory		$	38,095					$	38,095
Fixed Assets		$	38,555					$	38,555
Deferred Tax		$	57,000		$	(57,000	)
Other		$	16,915					$	16,915
Net Asset Value		$	1,775,053		$	(253,257	)	$	1,521,795

 

 

(b)            Estimated NAV.   The parties hereto agree that in determining the estimated net asset value at Closing (the “ Estimated NAV ”), adjustments will be made to the extent that the Latest Financial Statements of the Company fail to conform in all respects to GAAP, including all required reserves and accruals for relevant items, such as:

 

(i)             accounts receivable net of reserves for Product Sales Returns, Discontinued Product Returns, Uncollectable or A/R > 90 Days, and Payment Term Discounts (2%) (all as referenced on and according to the methodology used on the Accounts Receivable Analysis attached at Schedule 2.2 ), it being understood that an accounts receivable aging review shall be completed the day prior to Closing and used in the calculation of the Estimated NAV;

 

(ii)            all Inventory, net of reserves according to the methodology used in the Inventory Summary attached at Schedule 2.2 , which attempts to determine inventory that is good and saleable (valued at standard cost under FIFO), with all items of inventory in excess of the last 12 months historical sales (based on an individual SKU by SKU and Assigned Account analysis of products as currently marketed) on hand being fully reserved, with no inventory with an age greater than 12 months (based on date manufactured), unless fully reserved for, and with all inventory having a shelf life of at least 24 months, and which shall not include overstock or obsolete items, nor shall the Inventory include any supplies or items normally expensed, and, as it relates to the Estimated NAV, it being understood that an inventory audit shall be completed prior to Closing and used in the calculation of the Estimated NAV; and

 

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(iii)          prior to Closing, for all Purchased Assets, the parties will undertake and complete a review of accumulated depreciation on all fixed assets through Closing and make appropriate adjustments.

 

If any item on the Company’s historical financial statements is not reflected in accordance with GAAP, or if any item which should be reflected on the Company’s historical financial statements is missing therefrom, in determining the Estimated NAV such items shall nonetheless be included and determined in accordance with GAAP, and all accounting entries will be taken into account regardless of their amount, all known errors and omissions will be corrected and all known proper adjustments will be made.  If the Estimated NAV is greater or less than the Minimum NAV, the Purchase Price payable at Closing shall be increased or decreased accordingly by the amount of such difference on a dollar-for-dollar basis.

 

(c)            Optional Post-Closing Adjustment .   No later than four (4) months after the date that the Company delivers the Closing Date Financial Statements to Buyer, Buyer may prepare and deliver to the Company, on behalf of all the Sellers, a written statement (the “ Proposed Statement ”) setting forth a calculation of the actual NAV (“ Actual NAV ”).  The Company shall respond on behalf of (and are hereby empowered to respond on behalf of) all Sellers and, if it has any objections to the Proposed Statement, it shall deliver a detailed statement describing the objections to Buyer within 30 days after receiving the Proposed Statement, and in the absence of providing any such objection, the Proposed Statement shall be deemed the final statement (the “ Final Statement ”) and the calculation of the Actual NAV set forth on the Final Statement shall be conclusive and binding upon the parties hereto.  The Buyer and the Company shall use commercially reasonable efforts to resolve any such objections.  If the Buyer and the Company fail to obtain a final resolution within 30 days after the Buyer receives the Company’s written objections to the Proposed Statement, the Buyer and the Company shall select a single accounting firm mutually acceptable to the Buyer and the Company, and such accounting firm shall resolve any objections.  If the Buyer and the Company are unable to select a mutually acceptable accounting firm, they will select a nationally-recognized “Big-4” accounting firm by lot (after excluding their respective regular outside accounting firms), and such accounting firm shall resolve any objections.  The determination of any accounting firm so selected shall be set forth in writing and shall be conclusive and binding upon the Buyer and the Company.  The Buyer, on behalf of all parties, shall thereafter revise the Proposed Statement to reflect the determination of the accounting firm and the final revised Proposed Statement shall become the Final Statement.  Buyer and Company shall equally share the costs, fees and expenses associated with retaining any such accounting firm. If the Actual NAV (as finally determined pursuant to this Section 2.5(c) ) is less than the Estimated NAV, Company will pay to Buyer an amount equal to the full amount of such difference by wire transfer or delivery of other immediately available funds within three business days after the date on which the Actual NAV is finally determined.  If the Actual NAV (as finally determined pursuant to this Section 2.5(c) ) is greater than the Estimated NAV, Buyer will pay to Company an amount equal to the full amount of such difference by wire transfer or delivery of other immediately available funds within three business days after the date on which the Actual NAV is finally determined.

 

2.6           Closing of Transactions .   The closing of the transactions contemplated by this Agreement (the “ Closing ”) will take place at the corporate offices of

 

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Interleukin Genetics, Inc or other mutually agreeable place at 10:00 a.m. EST time on July 1, 2009, to be effective as of opening of business on July 1, 2009, if all of the conditions to Closing specified in Section 3.1 have been satisfied.  July 1, 2009 is herein referred to as the “ Closing Date .”

 

2.7          Disposition of Holdback Amount .   In addition to any other rights and remedies available to Buyer and without limiting Buyer’s ability to recover for any claims made pursuant to this Agreement, the Holdback Amount will be available to satisfy any other amounts owed by any of the Sellers to the Buyer pursuant to this Agreement, including, at Buyer’s option, any post-closing adjustments to the Purchase Price under Section 2.5 .  More specifically,

 

on the second anniversary of the Closing Date (or, if not on a business day then the next following business day) (the “ Disbursement Date ”), the Buyer shall release and deliver to the Company the Holdback Amount (after deducting the amount, if any, as to which Claims shall theretofore have been made by the Buyer subject to the indemnification provisions contained in Section 8.2 ).  If the amount of any Claims exceeds the amount of the Holdback Amount, the entire remaining balance of the Holdback Amount shall be set aside and retained by the Buyer until the final disposition of such Claims; provided, that any amounts withheld by Buyer hereunder shall promptly be paid to Seller in the event that they cease to be subject to a Claim (i.e., a Claim is resolved fully in the Seller’s favor, or if partially in Seller’s favor, then an appropriate partial disbursement will be made).

 

2.8          Sales Tax Resale Certificate .   Buyer shall deliver to the Sellers at the Closing a sales tax resale certificate and/or an exempt use certificate, as applicable, which shall cover all of the Inventory included within the Purchased Assets.  If there are any transfer taxes owing with regard to the transfer of the Purchased Assets, the Company and Buyer shall share such taxes equally.

 

ARTICLE III
deliverables

 

3.1          Company Deliverables .   At or prior to Closing (except as otherwise specified below), the Company shall have delivered, caused to be delivered or made available the following:

 

(a)            Consents .   All consents by third parties that are required for the transfer of the Purchased Assets to the Buyer, or that are required for the consummation of the transactions contemplated hereby, or that are required in order to prevent a breach of, a default under or a termination or material modification of any material agreement to which the Company is a party or to which any material portion of the property of the Company is subject will have been obtained, and releases of any and all security interests held by third parties for which the underlying indebtedness has been, or will be, repaid by the Company on the Closing Date will have been obtained, all on terms reasonably satisfactory to the Buyer, including without limitation all of the following:

 

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(i)             A consent from the landlord for the Lease for an assignment of the Lease to Buyer, or a sublease to Buyer, or some other arrangement acceptable to Buyer and the Company regarding the Lease, with an extension on the existing term not longer than one (1) year from the current expiration date of June 30, 2009;

 

(ii)            A consent from Wakunaga to an assignment of its Distribution Agreement with Company dated as of the 1 st  day of January, 2006, as amended by a First Addendum thereto (the “ Wakunaga Contract ”), which assignment shall include a representation and warranty from Company and Wakunaga that Wakunaga holds no outdated or obsolete product components or packaging and less than a three (3) month supply of components otherwise; and

 

(iii)          A consent from any other owners of any of the trademarks used in the Business with respect to an assignment of the trademark licenses and rights held by the Company to Buyer;

 

(b)            Governmental Approvals .   All governmental filings, authorizations and approvals that are required for the consummation of the transactions contemplated hereby will have been duly made and obtained on terms reasonably satisfactory to Buyer;

 

(c)            Financial Statements .   Copies of the Company’s (i) unaudited financial statements for the period ended as of December 31, 2006, December 31, 2007, December 31, 2008 and March 31, 2009 (the “ Interim Financial Statements ”) and (ii) as soon as they are available but no later than forty-five (45) calendar days after the Closing Date, unaudited financial statements for the period ending as of the Closing Date (the “ Closing Date Financial Statements, ” together with the Interim Financial Statements, the “Interim Plus Closing Financial Statements”).  The Interim Plus Closing Financial Statements shall be prepared according to GAAP, consistently applied;

 

(d)            Payoff and Release Letters .   The Buyer shall have received payoff and release letters in form and substance satisfactory to the Buyer with respect to the complete payment and satisfaction of all of the Company’s Indebtedness and the release of all Liens on the Purchased Assets of the Company, if any;

 

(e)            Other Deliverables .   On or prior to the Closing Date, the Company shall have delivered or made available to the Buyer each of the following:

 

(i)             certified copies of the resolutions of Company’s board of directors approving the transactions contemplated by this Agreement;

 

(ii)            copies of all third party and governmental consents, approvals and filings required in connection with the consummation of the transactions contemplated herein, including but not limited to a consent from Landlord for the assignment of the Lease or a sublease under the Lease (if and to the extent required or requested by Buyer);

 

(iii)                             all formulations for all products of the Company, sufficient for a knowledgeable person to manufacture the same without further information or instructions;

 

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(iv)           complete customer and vendor lists of the Company, including all relevant contact information, such as addresses, phone numbers, fax numbers, principal contact persons, all of which shall preferably be provided in both hard copy and in electronic format;

 

(v)             a fairness opinion from Company’s investment bank in form satisfactory to Buyer; and

 

(vi)           such other documents or instruments as Buyer reasonably requests to effect the transactions contemplated hereby.

 

3.2           Buyer Deliverables .   At or prior to Closing (except as otherwise specified below), Buyer shall have delivered or caused to be delivered the following:

 

(i)                                     certified copies of the resolutions of the Buyer’s board of directors approving the transactions contemplated by this Agreement;

 

(ii)                                 the Purchase Price, less the Holdback Amount, for the Purchased Assets; and

 

(iii)          such other documents or instruments as Sellers reasonably request to effect the transactions contemplated hereby.

 

ARTICLE IV
PRE-CLOSING COVENANTS

 

4.1           Pre-Closing Covenants .   The parties hereto agree as follows with respect to the period between the execution of this Agreement and the Closing:

 

(a)            General .  Each of the parties hereto shall use their reasonable best efforts to take all actions and to do all things necessary, proper or advisable in order to consummate and make effective the transactions contemplated by this Agreement (including the satisfaction, but no waiver, of the closing conditions set forth in Article III above);

 

(b)            Operation of the Business .   Each of the Sellers shall use their reasonable best efforts to carry on the Business of the Company substantially in the same manner as historically conducted and shall refrain from engaging in any practice, taking any action, or entering into any transaction outside the ordinary course of business;

 

(c)            Preservation of the Business . The Company shall keep its business and properties substantially intact, including its present operations, physical facilities, working conditions, insurance policies and relationships with its employees, lessors, licensors, suppliers, contractors, distributors customers and others having business dealings with the Business, sufficient to enable the Company to operate its Business in accordance with past practices;

 

(d)            Maintenance of Assets .   The Company shall maintain the assets of the Company in customary repair, order and condition consistent with past practice and current needs, replace in accordance with past practice its inoperable, worn out or obsolete assets and, in the event of a casualty, loss or damage to any of such assets or properties prior to the Closing

 

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Date for which the Company is insured, either repair or replace such damaged property or use the proceeds of such insurance in such other manner as mutually agreed upon by the Buyer and the Company;

 

(e)            Books and Records .   The Company shall maintain the books, accounts and records of the Company in accordance with past custom and practice as used in the preparation of the Financial Statements (as defined in Section 5.4(a)  below);

 

(f)             Notice of Developments .   The Sellers shall give prompt written notice to the Buyer of any material adverse development causing a breach of any of its own representations and warranties in Article V hereof or any breach of any covenant hereunder by any of the Sellers;

 

(g)            Maintain Open Communications .   Sellers shall confer on a reasonable basis at the Buyer’s request with representatives of the Buyer to report on operational matters and the general status of ongoing operations;

 

(h)            Other Negative Covenants .   Each of the Sellers shall refrain from the following with respect to the Company or the Business:

 

(i)            making any loans, entering into any insider transactions or making or granting any increase in any employee’s or officer’s compensation or making or granting any increase in any employee benefit plan, incentive arrangement or other benefit covering any of the employees of the Company, other than in the ordinary course of the Company’s business consistent with past practices to or with individuals who are not affiliated with the Company;

 

(ii)           establishing or, except in accordance with past practice, contributing to any pension, retirement, profit sharing or stock bonus plan or multiemployer plan covering the employees of the Company;

 

(iii)         entering into any contract, agreement or transaction other than in the ordinary course of the Company’s business consistent with past practice and at arm’s length with persons or entities that are not affiliated with the Company; and

 

(iv)          making or changing any election, changing any annual accounting period, adopting or changing any accounting method, filing any amended Tax Return, entering into any closing agreement, settling any Tax claim or assessment relating to the Company, surrendering any right to claim a refund of Taxes, consenting to any extension or waiver of the limitation period applicable to any Tax claim or assessment, or taking any other similar action, or omitting to take any action relating to the filing of any Tax Return or the payment of any Tax, if such election, adoption, change, amendment, agreement, settlement, surrender, consent or other action or omission would have the effect of increasing the present or future Tax liability or decreasing any present or future Tax asset of the Company.

 

(i)             Buyer Cooperation .  The Buyer shall cooperate with the Sellers and use its reasonable best efforts to cause the conditions to the Company’s obligations to close to be satisfied (including the execution and delivery of all agreements contemplated hereunder to be so executed and delivered); and

 

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(j)             Intentionally Omitted .

 

(k)            Access .   Sellers shall provide, and shall cause their respective officers, employees, agents and representatives (including the Company’s independent accountants) to provide to Buyer and its officers, employees, agents and representatives reasonable access to personnel (including the Company’s independent accountants), and financial, accounting and other data and information.

 

ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF THE SELLERS

 

The Sellers jointly and severally represent and warrant to the Buyer that the statements contained in this Article V are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Article V ).

 

5.1           Organization and Corporate Power .   Company is duly organized, validly existing and in good standing under the laws of the State of Delaware.

 

5.2           Authorization of Transactions .   The Company has full corporate power and authority to execute and deliver this Agreement and perform all of its obligations hereunder.  All appropriate and necessary action required by law and by the articles of incorporation and bylaws of the Company and Shareholder have been taken to authorize this Agreement and all related transactions and agreements and Closing hereunder.  Without limiting the generality of the foregoing, the Shareholder has and, if required by applicable law and bylaws, the shareholders of the Shareholder have duly authorized the execution, delivery, and performance of this Agreement by the Company.  This Agreement constitutes the valid and legally binding obligation of the Sellers, enforceable in accordance with its terms and conditions.

 

5.3           Non-Contravention .   Except as set forth on Schedule 5.3 , neither the execution and the delivery by the Sellers of this Agreement or any other agreements as contemplated herein to which it is a party, the performance by it of its obligations hereunder or thereunder, nor the consummation by it of the transactions contemplated hereby or thereby, will: (i) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which the Company is subject or any provision of the charter or bylaws of the Company; (ii) conflict with, result in any breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which the Company is a party or by which it is bound or to which any of its assets is subject (or result in the imposition of any Lien upon any of its assets), except where the violation, conflict, breach, default, acceleration, termination, modification, cancellation, failure to give notice, or Lien would not have a material adverse effect; or (iii) require the giving of notice to, making of any filing with,

 

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or obtaining any authorization, consent, approval, exemption or other action of any court or other governmental body.

 

5.4           Financial Statements .

 

(a)            Set forth in Schedule 5.4 are the true and correct copies of the Company’s financial statements that include copies of the Company’s (i) unaudited financial statements (balance sheet and statement of income) for the fiscal year ended December 31, 2006, (ii) unaudited financial statements (balance sheet and statement of income) for the fiscal year ended December 31, 2007, (iii) unaudited balance sheets and statements of income for the fiscal year ended December 31, 2008, as adjusted, (iv) unaudited financial statements for the period ended as of March 31, 2009 (the financial statements described in clause (v) only, the “ Latest Financial Statements ”); and (vi) the Federal and any applicable State Tax returns and supporting schedules for Alan James Group for calendar years 2006, 2007 and 2008 (when available after closing).  Except as set forth in Schedule 5.4 , each of the foregoing financial statements (including in all cases the notes thereto, if any) (collectively, the “ Financial Statements ”) is accurate and complete in all material respects, is consistent with the Company’s books and records (which, in turn, are accurate and complete in all material respects), present fairly, in all material respects, the Company’s financial position and results of operations as of the times and for the periods referred to therein, and has been prepared in accordance with the Company’s past accounting practices consistently applied.

 

(b)            The Interim Financial Statements delivered in accordance with Section 3.1(c)  above were prepared in accordance with GAAP, consistently applied.

 

5.5           Title to and Condition of Assets .

 

(a)            Except as set forth in Schedule 5.5 , the Company has good and marketable title to, or a valid leasehold interest in, the tangible and intangible properties and assets used by it, located on its premises, or shown on the Latest Financial Statements or acquired after the date hereof, or otherwise included within the Purchased Assets, free and clear of all Liens, except for properties and assets disposed of in the ordinary course of business since the date of the Latest Financial Statements.  Without limiting the generality of the foregoing, the Company has good and marketable title to all of the Purchased Assets, free and clear of any Liens or restriction on transfer.

 

(b)            Except as set forth in Schedule 5.5 , the Purchased Assets owned or otherwise used by the Company in the conduct of its business (other than assets that are not necessary for the operation of the Business) are in satisfactory operating condition and repair and are usable in the ordinary course of business, subject only to the provision of usual and customary maintenance and repair performed in the ordinary course with respect to similar properties of like age and construction. The Purchased Assets so conveyed will include all of those assets (real, personal, tangible and intangible) necessary to conduct the Business in substantially the same manner as presently conducted and all assets used during the twelve months prior to the Closing Date (other than inventory sold to third parties or consumed in the ordinary course of business and worn out or obsolete fixed assets disposed of in the ordinary

 

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course of business) and will enable Buyer to operate the Business in substantially the same manner as operated by Company during the twelve month period prior to the Closing Date.

 

5.6           Absence of Undisclosed Liabilities .   The Company has no material obligations or liabilities (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to becoming due, including any liability for Taxes and liabilities with respect to or based upon loans, indebtedness, promissory notes, debentures, deferred purchase price for property or services, or similar obligations (or any guaranties of any of the foregoing)), except for (i) liabilities set forth on the face of the Latest Financial Statements (rather than in any notes thereto); (ii) liabilities that have arisen after the date of the Latest Financial Statements in the ordinary course of business (none of which is a result of a breach); and (iii) those liabilities disclosed in Schedule 5.6 .

 

5.7           Absence of Certain Developments .   Except as set forth in Schedule 5.7 , and except as expressly contemplated by this Agreement, since the date of the Latest Financial Statements, the Company has not:

 

(a)            suffered a material adverse change in the Business or financial condition or operating results or earnings or assets or customer, supplier, employee and sales representative relations, taken in the aggregate, or business condition or financing arrangements of the Company and there has been no material casualty loss or damage to the assets of the Company (whether or not covered by insurance);

 

(b)            borrowed any amount or incurred or became subject to any liabilities, except trade payables incurred in the ordinary course of business consistent with past practice;

 

(c)            discharged or satisfied any Lien or paid any obligation or liability, or prepaid any amount of indebtedness for borrowed money, other than those discharged, satisfied, paid or prepaid in the ordinary course of business;

 

(d)            mortgaged, pledged or subjected to any Lien any portion of the properties or assets associated with or used in the Business;

 

(e)            sold, leased, assigned or transferred (including transfers to any employees or affiliates