ASSET PURCHASE AGREEMENT

Exhibit 2.1

 

ASSET PURCHASE AGREEMENT

 

Dated, October 15, 2003

 

By and Among

 

QUANTUM-VERITEK, INC.

a Michigan corporation

 

and

 

VERI-TEK INTERNATIONAL CORP.,

a Michigan corporation

 

and

 

JAMES JURANITCH

 

TABLE OF CONTENTS

 

 

TABLE OF CONTENTS

 

 

TABLE OF CONTENTS

 

 

LIST OF EXHIBITS

 

*	To be attached as exhibits to and delivered upon execution of the Asset Purchase Agreement.

 

**	To be executed and delivered at Closing on the Asset Purchase Agreement.

 

†	Omitted from this prospectus pursuant to Item 601(b)(2) of Regulation S-K. Veri-Tek International Corp. agrees to furnish a copy of any omitted exhibit to the SEC upon request.

 

ASSET PURCHASE AGREEMENT

 

THIS ASSET PURCHASE AGREEMENT, is entered into this October     , 2003 by and among Quantum-Veritek, Inc. , a Michigan corporation (the “ Purchaser” ), Veri-Tek International Corp., a Michigan corporation (“Veri-Tek or the “Company”), and James Juranitch (“Principal”) solely with respect to Section 1.3(b)(i).

 

A. The Company is engaged in the business of 1) designing test equipment; 2) building equipment used in the manufacture of drive shafts and axle; 3) utilization of “S.M.A.R.T. Manufacturing” ^™ and 4) utilization of respective analysis packaging and the performance of all services in connection therewith, wherever located (the “Business”).

 

B. The parties hereto wish to provide for the terms and condition upon which the Purchaser will acquire substantially all of the operating assets of the Business and assume certain specified liabilities of the Company.

 

C. The parties hereto wish to make certain representations, warranties, covenants and agreements in connection with the purchase of assets and assumption of liabilities and also to prescribe various conditions herein contained, and therefore the parties hereto agree as follows:

 

1.	PURCHASE OF ASSETS

 

1.1.	Assets to be Purchased

 

(a) Upon satisfaction of all conditions to the obligations of the parties contained herein (other than such conditions as will have been waived in accordance with the terms hereof), the Company will sell, transfer, convey, assign and deliver to the Purchaser, and the Purchaser will purchase from the Company, at the Closing (as hereinafter defined), all of the business, assets, properties, goodwill and rights of the Company, whether tangible or intangible, real, personal or mixed, wheresoever located and whether or not carried or reflected on the books and records of Company or any subsidiary or affiliate of the Company including, without limitation:

 

(i) all rights of the Company in the personal property that is owned or leased by the Company or in which it has any right or interest;

 

(ii) franchises;

 

(iii) all right, title and interest in and to the use of the Company’s corporate names and any derivatives or combinations thereof as used by the Company;

 

(iv) all of the Intellectual Property Rights (as hereinafter defined), including the goodwill associated therewith, rights to use, licenses and sublicenses in respect thereto and the rights thereunder, royalties and remedies against infringement thereof (including past infringements), and rights of protection of interest therein;

 

(v) rights under or pursuant to licenses by or to the Company to the extent transferable;

 

(vi) inventory (materials, work in process, finished goods), equipment, machinery, furniture, fixtures, motor vehicles and supplies;

 

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(vii) accounts receivable;

 

(viii) prepaid expenses;

 

(ix) all of the Company’s rights with respect to insurance policies (if, and to the extent, assignable), other than policies for product liability coverage and policies on the life of the Principal, contracts, purchase orders, customers, lists of customers and suppliers, sales representative agreements, and all favorable business relationships, causes of action, judgments, claims and demands of whatever nature;

 

(x) all credit balances of or inuring to the Company, under any state unemployment compensation plan or fund;

 

(xi) all of the Company’s rights with respect to partnership or joint venture agreements or arrangements;

 

(xii) files, papers and records relating to the Company’s business and assets (but the Company shall have access to and use of the records for reasonable business purposes);

 

(xiii) the assets as reflected on the Latest Unaudited Balance Sheet (as hereinafter defined), with only such dispositions of such assets reflected on the Latest Unaudited Balance Sheet as will have occurred in the ordinary course of business of the Company between the date thereof and the Closing and which are permitted by the terms hereof; and

 

(xiv) all cash on hand at Closing.

 

All of the foregoing are sometimes collectively referred to herein as the “ Assets ” and are more fully described on Exhibit 1.1(a) hereto.

 

(b) Notwithstanding the foregoing, the Company will not sell, transfer, convey, assign or deliver to the Purchaser, and the Purchaser will not purchase from the Company, the following assets:

 

(i) the consideration delivered to the Company pursuant to this Agreement (as hereinafter defined) for the Assets;

 

(ii) the minute books, corporate seal and stock records of the Company (subject to delivery of complete copies thereof to Purchaser in connection with its due diligence investigation);

 

(iii) all real estate (and improvements thereon) owned by the Company;

 

(iv) those items of machinery and equipment listed on Exhibit 1.1(b) hereto;

 

(v) those items of personal property, if any, used by the officers of the Company and identified on Exhibit 1.1(b) hereto;

 

(vi) claims of any kind or nature that the Company has or may have against any of the officers, directors, shareholders or employees of the Company, or others who have

 

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provided professional services of any kind to the Company, including, without limitation, any loans to officers, directors, shareholders or employees of the Company, or others who have provided professional services of any kind to the Company; and

 

(vii) such other items listed on Exhibit 1.1(b) hereto.

 

All of the foregoing are sometimes collectively referred to herein as the “Excluded Assets” and are more fully described on Exhibit 1.1(b) hereto.

 

1.2.	Liabilities Assumed.

 

Upon satisfaction of all conditions to the obligations of the parties contained herein (other than such conditions as will have been made in accordance with the terms hereof), the Purchaser will assume the liabilities of the Company (the “ Assumed Liabilities” ) as specifically set forth on Exhibit 1.2 (the “ Liabilities Undertaking” ). Except for the Assumed Liabilities, the Purchaser has not agreed to pay, will not be required to assume and will have no liability or obligation, direct or indirect, absolute or contingent, with respect to any of the following liabilities or obligations of the Company or any affiliates or associates or of any other person (the Retained Liabilities” ):

 

(a) any obligation for Taxes (as defined in Section 2.15) related to any of the Assets for any Tax period or portion thereof ending on or before the applicable Closing Date for purchase of such Assets and any obligation for other Taxes of the Company or its officers, directors, shareholders, or other agents or affiliates;

 

(b) Environmental Claims as defined in Section 2.26(b);

 

(c) any claims, damages, charges, assessments or the like arising out of or related to, directly or indirectly, product liability claims, warranty claims (except as specifically set forth in Exhibit 1.2(c)), claims of negligence, failure to perform, defect in workmanship, or the like, for products sold by or manufactured by the Company prior to Closing, and for worker’s compensation claims for injuries suffered prior to Closing, and for worker’s compensation claims for injuries suffered prior to Closing;

 

(d) any claim, obligation, liability, debts, contract right or the like that the Company may have or owe to the Principal.

 

1.3.	Purchase Price.

 

(a) The total consideration to be paid by the Purchaser to the Company for the Assets (the “ Purchase Price ”) will be an amount equal to:

 

(i) Six Million Dollars ($6,000,000.00) in cash (the “Basic Purchase Price”), and

 

(ii) the aggregate sum of the “Assumed Liabilities”, and

 

(b) At the Closing, the Purchaser will:

 

(i) Execute and deliver to the Principal Employment and Noncompete Agreements in form attached as Exhibit 1.3(b)(i);

 

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(ii) Execute and deliver to the Company the Liabilities Undertaking;

 

(iii) Execute and deliver to Quantum Associates, LLC., a management agreement in the form attached hereto on Exhibit 1.3 (iii);

 

(iv) Execute and deliver to the Company the Assignment and Assumption of Real Property Lease in the form attached hereto on Exhibit 1.3(iv);

 

(v) Execute and deliver to the Company the Assignment and Assumption of Equipment Leases in the form attached hereto on Exhibit 1.3(v);

 

(vi) Execute and deliver to the Principal all documentation necessary to convey to the Principal a 40% equity interest in Purchaser; and

 

(vii) Deliver to the Company Six Million Dollars ($6,000,000) by wire transfer to an account specified by the Company.

 

(c) The Purchase Price will be allocated among the Assets in the manner required by Section 1060 of the Internal Revenue Code of 1986, as amended (the “ Code ”). In making such allocation, the allocations set forth in Exhibit 1.3(c), attached hereto will apply, subject to adjustment after the Closing based upon the Closing Balance Sheet. In preparing Exhibit 1.3(c), the Company will cooperate fully with the Purchaser in determining the values of the Assets and the resulting allocation of the Purchase Price among the various assets; it being understood that such determination will be binding on the Purchaser and the Company only for the purposes of U.S. Federal, state and local taxation. The Company and the Purchaser will file all Tax Returns (as defined in Section 2.15) and tax reports (including IRS Form 8594) in accordance with and based upon such allocation and will take no position in any Tax Return, tax proceeding or tax audit which is inconsistent with such allocation.

 

(d) The basic purchase price shall be reduced, dollar for dollar, by the aggregate amount of any bank borrowing used to reduce the Company’s payable to the Principal below the One Million Five Hundred Thousand Dollar ($1,500,000.00) set forth on the Company’s December 31, 2002 financial statements.

 

1.4.

Closing.

 

Unless this Agreement will have been terminated and the transactions contemplated herein will have been abandoned pursuant to Section 7 hereof, a closing (the “ Closing” ) will be held on October 30, 2003 (the “ Closing Date” ); provided, however, that if any of the conditions provided for in Sections 5 and 6 hereof will not have been satisfied or waived by such date, then the party to this Agreement which is unable to satisfy such condition or conditions, despite the best efforts of such party, will be entitled to postpone the Closing by notice to the other parties until such condition or conditions will have been satisfied (which such notifying party will seek to cause to happen at the earliest practicable date) or waived, but in no event may the Closing occur later than 5:00 p.m. on the “ Termination Date” which will be November 2, 2003, unless the parties hereto agree in writing to extend the Termination Date. The parties will use their best efforts to complete the Closing by the Closing Date, or Termination Date, as the case may be. The Closing will be held at the offices of the respective parties, or such other place as the parties may agree, at 11:00 a.m., local time or such other time as the parties may agree, at which time and place the documents and instruments necessary or appropriate to effect the transactions contemplated herein will be exchanged by the parties.

 

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1.5.	Instruments of Transfer to Purchaser at the Closing.

 

At the Closing, the Company will deliver to the Purchaser:

 

(a) Such bills of sale, endorsements, assignments (to the extent assignable), and other good and sufficient instruments of conveyance and transfer, in form and substance reasonably satisfactory to the Purchaser and its counsel, as will be required to vest in the Purchaser title to the Assets, including without limitation:

 

(i) General bills of sale vesting in the Purchaser good and marketable title to all of the Assets in the form included in Exhibit 1.5 hereto;

 

(ii) Appropriate endorsements and assignments of the contracts, licenses, agreements, permits, plans, commitments and other binding arrangements included in the Assets;

 

(iii) Specific bills of sale, endorsements and assignments transferring to the Purchaser the Intellectual Property Rights as set forth in Exhibit 1.5(a)(iii); and

 

(iv) Such written consents, agreements and other instruments as the Purchaser will reasonably request to enable it to use any and all trade names of the Company, and all other variations or combinations thereof as used by the Company; and

 

(b) All data relating to the assets, property, goodwill and business of the Company. Simultaneously with such delivery, the Company will take all actions necessary to put the Purchaser in actual possession and operating control of the Assets.

 

2.	REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

The Company hereby represents and warrants to the Purchaser, as of the date hereof, as follows:

 

2.1.	Disclosure Schedule.

 

The disclosure schedule attached as Exhibit 2 hereto (the “ Disclosure Schedule ”) is divided into sections which correspond to the subsections of this Section 2. The Disclosure Schedule, as amended, is true, complete and correct in all material respects, and at Closing, shall be true, complete and correct in all material respects. Nothing in the Disclosure Schedule will be deemed adequate to disclose an exception to a representation or warranty made herein, unless the Disclosure Schedule identifies the exception with reasonable particularity and describes the relevant facts in reasonable detail. Disclosures in any subsection thereof will constitute disclosure for purposes of any other subsection and any other section or subsection of this Agreement or any exhibit to or other writing which is designated herein as being part of this Agreement.

 

2.2.	Corporate Organization.

 

The Company is a corporation duly organized, validly existing and in good standing under the law of the State of Michigan, has full corporate power and authority to carry on its Business as it is now being conducted and to own, lease and operate its properties and assets, is duly qualified or licensed to do business as a foreign corporation in good standing in every other jurisdiction in which the character or location of the properties and assets owned, leased or operated by it or the conduct of its Business

 

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requires such qualification or licensing, except in such jurisdictions in which the failure to be so qualified or licensed and in good standing would not, individually or in the aggregate, has a Material Adverse Effect (as defined in Section 9.12) on the Company; and has heretofore delivered to the Purchaser true, complete and correct copies of its articles of incorporation and code of regulations, as presently in effect. The Disclosure Schedule contains a list of all jurisdictions in which the Company is qualified or licensed to do business. The Company has no subsidiaries.

 

2.3.	Authorization.

 

The Company has full corporate power and authority to enter into this Agreement and to carry out the transactions contemplated herein. The Board of Directors of the Company has taken all action required by law, the Company’s articles of incorporation and code of bylaws and otherwise to authorize the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated herein. This Agreement has been duly and validly executed and delivered by the Company and no other corporate action is necessary. This Agreement is a valid and binding legal obligation of the Company enforceable against it in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditor’s rights, and to general equity principles.

 

2.4.	Non-Contravention.

 

Except as set forth in the Disclosure Schedule, neither the execution, delivery and performance of this Agreement, nor the consummation of the transactions contemplated herein will: (i) violate or be in conflict with any provision of the articles of incorporation or code of bylaws of the Company; or (ii) except for such violations, conflicts, defaults, accelerations, terminations, cancellations, impositions of fees or penalties, mortgages, pledges, liens, security interests, encumbrances, restrictions, changes or other events which could not reasonably be expected to, individually or in the aggregate, have a Material Adverse Effect, (A) be in conflict with, or constitute a default, however defined (or an event which, with the giving of due notice or lapse of time, or both, would constitute such a default), under, or cause or permit the acceleration of the maturity of, or give rise to any right of termination, cancellation, imposition of fees or penalties under, any debt, note, bond, lease, mortgage, indenture, license, obligation, contract, commitment, franchise, permit, instrument or other agreement or obligation to which the Company is a party or by which the Company or any of the Assets is or may be bound (unless with respect to which defaults or other rights, requisite waivers or consents will have been obtained at or prior to the Closing) or (B) result in the creation or imposition of any mortgage, pledge, lien, security interest, encumbrance, restriction, adverse claim or charge of any kind, upon the Assets under any debt, obligation, contract, agreement or commitment to which the Company is a party or by which the Company or any of the Assets is or may be bound; or (iii) violate any applicable statute, treaty, law, judgment, writ, injunction, decision, decree, order, regulation, ordinance or other similar authoritative matters (sometimes hereinafter separately referred to as a “ Law ” and sometimes collectively as “ Laws ”) of any federal, state or local governmental or quasi-governmental, administrative, regulatory or judicial court, department, commission, agency, board, bureau, instrumentality or other governmental authority (hereinafter sometimes separately referred to as an “ Authority ” and sometimes collectively as “ Authorities ”).

 

2.5.	Consents and Approvals.

 

Except as set forth in the Disclosure Schedule, and with respect to the Company, no consent, approval, order or authorization of or from, or registration, notification, declaration or filing with (hereinafter

 

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sometimes separately referred to as a “ Consent” and sometimes collectively as “ Consents” ) any individual or entity, including without limitation any Authority, is required in connection with the execution, delivery or performance of this Agreement by the Company or the consummation by the Company of the transactions contemplated herein except where the failure to obtain such Consent would not prevent or delay consummation of the transactions contemplated herein, or otherwise prevent or delay the Company from performing its obligations under this Agreement, and would not have a Material Adverse Effect.

 

2.6.	Financial Statements.

 

The Disclosure Schedule contains true and complete copies of the balance sheets of the Company as of June 30, 2003 and 2002 and the related statements of operations, shareholders’ equity and cash flows for each of the respective fiscal years then ended as well as the unaudited balance sheet of the Company as of June 30, 2003 (“ Latest Unaudited Balance Sheet” ). Except as disclosed therein, the foregoing financial statements (i) are in accordance with the books and records of the Company and have been prepared in conformity with generally accepted accounting principles (“ GAAP” ) consistently applied for all periods, and (ii) fairly present the financial position of the Company as of the respective dates thereof, and the results of operations, and changes in shareholders’ equity and changes in cash flow for the periods then ended, all in accordance with GAAP consistently applied for all periods.

 

2.7.	Absence of Undisclosed Liabilities.

 

The Company does not have any liabilities, obligations or claims of any kind whatsoever which are required to be set forth in financial statements prepared in accordance with GAAP, whether secured or unsecured, accrued or unaccrued, fixed or contingent, matured or unmatured, direct or indirect, contingent or otherwise and whether due or to become due (referred to herein individually as a “ Liability ” and collectively as “ Liabilities ”), other than: (a) Assumed Liabilities; (b) Liabilities that are reserved for or disclosed in the Latest Unaudited Balance Sheet; (c) Liabilities that are set forth on the Disclosure Schedule; (d) Liabilities incurred by the Company in the ordinary course of business after the date of the Latest Unaudited Balance Sheet (none of which results from, arises out of, relates to, is in the nature of, or was caused by any material breach of contract, breach of warranty, gross negligence, willful or reckless conduct, infringement or material violation of Law); or (e) Liabilities for Assumed Contracts (other than any express executory obligations that might arise due to any material default or other material failure of performance by the Company prior to the Closing Date).

 

2.8.	Absence of Certain Changes.

 

Since the date of the Latest Unaudited Balance Sheet, the Company has owned and operated its assets, properties and Business in the ordinary course of business and consistent with past practice. Without limiting the generality of the foregoing and except as set forth on the Disclosure Schedule or in the ordinary course of business, the Company has not, since the Latest Unaudited Balance Sheet:

 

(a) suffered any Material Adverse Effect or experienced any event or failed to take any action which reasonably could be expected to result in such a Material Adverse Effect;

 

(b) suffered any loss, damage, destruction or other casualty (whether or not covered by insurance) or suffered any loss of officers, employees, dealers, distributors, independent contractors, customers, or suppliers which had or may reasonably be expected to result in a Material Adverse Effect;

 

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(c) incurred any indebtedness for borrowed money in excess of $25,000;

 

(d) mortgaged, pledged, or subjected to any lien, lease, security interest or other charge or encumbrance any of the Assets;

 

(e) acquired or disposed of any assets or properties;

 

(f) forgiven or canceled any debts or claims, or waived any rights in excess of $25,000;

 

(g) entered into any material transaction;

 

(h) granted to any officer or salaried employee or any other employee or consultant or independent contractor any increase in compensation in any form or paid any severance or termination pay;

 

(i) entered into any commitment for capital expenditures for additions to plant, property or equipment involving more than $25,000;

 

(j) written down the value of any inventory (including write-downs by reason of shrinkage or mark-down) or written off as uncollectible any notes or accounts receivable, except for immaterial write-downs and write-offs in the ordinary course of business and consistent with past practices;

 

(k) disposed of or permitted to lapse any rights to the use of any patent, trademark, trade name or copyright, or disposed of or disclosed to any person other than representatives of the Purchaser any trade secrets, formula, process or know-how not theretofore a matter of public knowledge, other than in the ordinary course of business consistent with past practice it being understood that the ordinary course of business includes obtaining confidentiality assurances from such persons;

 

(l) made any change in any method of financial or tax accounting or financial or tax accounting practice;

 

(m) suffered any adverse change in its relationship with any material customer, including the loss of any such material customer or a contract with any such material customer;

 

(n) purchased, leased or otherwise acquired any property or obtained any services from, or sold, leased or otherwise disposed of any property or furnished any services to, or otherwise dealt with, in the ordinary course of business or otherwise, (i) any shareholder of Company or (ii) any “ Affiliate ” or “ Associate ” (as defined in Rule 405 under the Securities Act of 1933, as amended) of Company or any shareholder of the Company (except with respect to compensation in the ordinary course of business for services rendered as a director, officer or employee of Company); or

 

(o) agreed, whether in writing or otherwise, to take any action described in this subsection.

 

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2.9.	Properties.

 

Except as set forth in the Disclosure Schedule, the Company has good and marketable title in and to all of the assets and fixtures included in the Assets. Except as set forth in the Disclosure Schedule, to the best knowledge of the Company none of the assets or fixtures owned by the Company and which are made a part of this transaction are subject to any mortgage, pledge, lien, security interest, encumbrance, claim, easement, right-of-way, tenancy, covenant, encroachment, restriction or charge of any kind or nature (whether or not of record) (“ Lien ”).

 

2.10.

Machinery, Equipment, Vehicles and Personal Property.

 

Except as set forth in the Disclosure Schedule, the Company has good and marketable right, title and interest in and to, or a leasehold interest in and to, the machinery, equipment, vehicles and other personal property included in the Assets. Except as set forth in the Disclosure Schedule, all of such leasehold interests relating to machinery, equipment, vehicles and other personal property are valid and in full force and effect and enforceable in accordance with their terms and there does not exist any material violation, breach or default thereof or thereunder. Except as set forth in the Disclosure Schedule, none of such machinery, equipment, vehicles or other personal property is subject to any mortgage, pledge, lien or security interest of any kind or nature (whether or not of record). Except as set forth in the Disclosure Schedule, the machinery, equipment, vehicles and other personal property of the Company are in reasonable operating condition and repair, normal wear and tear excepted.

 

2.11.

Inventories

 

Except as set forth in the Disclosure Schedule, all inventory as of the date of the Latest Unaudited Balance Sheet is, and as of the Closing Date will be, valued at the lower of cost or market. Except as set forth on the Disclosure Schedule, all inventory of the Company (the “ Inventory ”) is of a quality and quantity usable in the ordinary course of business, and the present quantities of Inventory of the Company are reasonable.

 

2.12.

Receivables and Payables.

 

(a) Except as set forth on the Disclosure Schedule, (i) the Company has good right, title and interest in and to all its accounts and notes receivable and trade notes and trade accounts constituting the Assets (the “ Accounts Receivable ”); (ii) none of such Accounts Receivable is subject to any Lien; (iii) to the best knowledge of the Company, except to the extent of applicable reserves shown in the Latest Unaudited Balance Sheet, all of the Accounts Receivable owing to the Company constitute valid and enforceable claims arising from bona fide transactions in the ordinary course of business, and there are no claims, refusals to pay or other rights of set-off against any thereof; (iv) no account or note debtor whose account or note balance exceeds the amount set forth in the Disclosure Schedule at the date set forth therein was delinquent in payment by more than ninety (90) days; (v) the aging schedule of the Accounts Receivable as of August 31, 2003 previously furnished to the Purchaser is complete and accurate; and (vi) to the knowledge of Company there is no reason why any Account Receivable will not be collected in accordance with its terms, other than for such accounts and notes which are not in excess of the reserves established therefor and reflected in the Latest Unaudited Balance Sheet.

 

(b) Except as set forth on the Disclosure Schedule, all accounts payable and notes payable by the Company to be assumed by the Purchaser pursuant to Section 1.2 arose in bona fide transactions in the

 

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ordinary course of business and no such account payable or note payable is delinquent by more than ninety (90) days in its payment.

 

2.13.

Intellectual Property Rights.

 

(a) The Company owns or has the unrestricted right to use all intellectual property rights, including without limitation the patents, patent applications, patent rights, registered and unregistered trademarks, trademark applications, trade names, service marks, service mark applications, logos, material copyrights, computer programs and other computer software, inventions, know-how, trade secrets, technology, proprietary processes and formulae (collectively, “ Intellectual Property Rights ”) necessary or required for use in connection with the Assets and for the conduct of the Business of the Company as presently conducted, free and clear of all Liens. All Intellectual Property Rights are listed or described on the Disclosure Schedule. Except as set forth on the Disclosure Schedule, to the best knowledge of the Company the use of all Intellectual Property Rights necessary or required for the conduct of the Business of the Company as presently conducted does not infringe or violate the intellectual property rights of any person or entity. Except as set forth in the Disclosure Schedule, to the best knowledge of Company no third party has filed suit or otherwise alleged that Company is infringing the intellectual property rights of any person or entity. Except as described on the Disclosure Schedule, the Company (i) does not own or use any Intellectual Property Rights pursuant to any written license agreement; and (ii) has not granted any person or entity any rights, pursuant to written license agreement, to use the Intellectual Property Rights.

 

(b) The Company hereby further represents and certifies as follows:

 

(i) the Assignment Documents specified in Exhibit 1.5(b)(iii) are annexed thereto and are true copies of the documents on file in the United States Patent and Trademark Office;

 

(ii) the status of each pending domestic and foreign patent application is as of October 9, 2003 as represented in the Status List of Exhibit 2.13(b);

 

(iii) there are no other intellectual property matters known to the Company that should be, but have not been, assigned to the Company; and

 

(iv) there have been no conflicting assignments or licenses granted with respect to the Intellectual Property Rights.

 

2.14.

Litigation.

 

Except as set forth in the Disclosure Schedule, to the best knowledge of the Company there is no action, suit, proceeding at law or in equity by any person or entity, or any arbitration or any administrative or other proceeding by or before (or any investigation by) any Authority, pending or threatened, against the Company or any of the Assets, or which questions or challenges the validity of this Agreement or any action taken or to be taken by the parties hereto pursuant to this Agreement or in connection with the transactions contemplated herein, and there does not exist any valid basis for any such action, proceeding or investigation. The Company is not subject to any judgment, order or decree entered in any lawsuit or proceeding to which it is a party which may have a Material Adverse Effect on the Company.

 

2.15.

Tax Matters.

 

For all purposes of this Agreement, the term “ Taxes ” means all federal, state, local, foreign and other net income, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, license, lease,

 

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service, service use, withholding, payroll, employment, excise, severance, stamp, occupation, premium, real or personal property, windfall profits, customs, duties or other taxes, together with any interest and any penalties, additions to tax or additional amounts with respect thereto, and the term “ Tax ” means any one of the foregoing Taxes. In addition, the term “ Tax Returns ” means all returns, declarations, reports, statements and other documents required to be filed with any Authority in respect of Taxes, and the term “ Tax Return ” means any one of the foregoing Tax Returns. Except as otherwise set forth in the Disclosure Schedule, the Company hereby represents and warrants the following with respect to the Company.

 

(a) Liability for Taxes. The Company shall be responsible for and shall pay all Taxes properly imposed on the Company which are attributable to or arising from the Business and operations of the Company conducted on and through the Closing Date and shall be responsible for its own income and franchise Taxes, if any, arising from the transactions contemplated by this Agreement. The Company hereby acknowledges that, in preparing the Closing Balance Sheet, all real property Taxes, personal property Taxes and similar ad valorem obligations levied with respect to any of the Assets for assessment periods which include the Closing Date will be appropriately apportioned.

 

(b) Filing of Tax Returns. There have been completed and duly filed on a timely basis all Tax Returns required to be filed on or prior to the date hereof by the Company with respect to Taxes of the Company. To the best knowledge of the Company, all such Tax Returns were correct and complete in all material respects.

 

(c) Payment of Taxes. With respect to all amounts in respect of Taxes imposed upon the Company with respect to all taxable periods or portions of periods ending on or before the Closing Date, all such amounts of Taxes shown on its Tax Returns on or before the date hereof have been duly paid and there are no liens for such Taxes upon any property or assets of the Company.

 

(d) Audits and Extensions. Section 2.15(d) of the Disclosure Schedule lists all federal income Tax Returns filed with respect to the Company for taxable periods ended on or after December 31, 1998 and indicates those federal income Tax Returns that have been audited and those federal income Tax Returns that currently are the subject of an audit, and except to the extent shown therein, all deficiencies asserted as a result of such completed examinations have been paid or finally settled and no issue has been raised by the Internal Revenue Service in any such examination which, by application of similar principles, reasonably could be expected to result in a proposed deficiency for any other period not so examined. Except as set forth in the Disclosure Schedule, all deficiencies and assessments of Taxes of the Company resulting from an examination of any Tax Returns by any Authority have been paid and to the best knowledge of the Company there are no pending examinations currently being made by any Authority nor has there been any written or oral notification to Company of any intention to make an examination of any Taxes by any Authority. Except as set forth in the Disclosure Schedule, there are no outstanding agreements or waivers extending the statutory period of limitations applicable to any Tax Return for any period.

 

(e) Independent Contractors and Employees. For purposes of computing Taxes and the filing of Tax Returns to the best knowledge of the Company, the Company has not failed to treat as “employees” any individual providing services to the Company who would be classified as an “employee” under the applicable rules or regulations of U.S. income tax laws.

 

(f) The representations and warranties set forth in subsections (a), (b), (c), (d) and (e) of this Section are not applicable to the extent the Assets cannot be made subject to Tax liens and the Purchaser cannot

 

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be made subject to liability for Taxes or other obligations or losses relating to the matters constituting breaches of such representations and warranties.

 

2.16.

Insurance.

 

The Disclosure Schedule contains an accurate and complete list of all policies of fire and other casualty, general liability, theft, life, workers’ compensation, health, directors and officers, business interruption and other forms of insurance owned or held by the Company, specifying the insurer, the policy number, the term of the coverage, the characteristics of the policy including but not limited to deductible amounts, per occurrence amounts, aggregate maximum amounts, and, in the case of any “claims made” coverage, the same information as to predecessor policies for the previous five years. All present policies are in full force and effect and all premiums with respect thereto have been paid. The Company has not been denied any form of insurance and no policy of insurance has been revoked or rescinded during the past five years, except as described on the Disclosure Schedule.

 

2.17.

Benefit Plans.

 

Except as set forth in the Disclosure Schedule:

 

(a) Neither the Company nor any other “person” within the meaning of Section 7701(a)(1) of the Code, that together with the Company is considered a single employer pursuant to Sections 414(b), (c), (m) or (o) of the Code or Sections 3(5) or 4001(b)(1) of the Employee Retirement Income Security Act of 1974, as amended (“ ERISA ”) (an “ Affiliated Organization ”) sponsors, maintains, contributes to, is required to contribute to or has or could have any liability of any nature, whether fixed or contingent, with respect to, any “employee pension benefit plan” (“ Pension Plan” ) as such term is defined in Section 3(2) of ERISA, including without limitation, any such plan that is excluded from coverage by Section 4(b)(5) of ERISA or is a “Multi-employer Plan” within the meaning of Section 3(37) or 4001(a)(3) of ERISA. To the best knowledge of the Company, each such Pension Plan has been operated in accordance with its terms and in compliance with the applicable provisions of ERISA, the Code and all other applicable Law. All Pension Plans which the Company operates as plans that are qualified under the provisions of Section 401(a) of the Code satisfy in form and operation the requirements of Section 401(a) and all other sections of the Code incorporated therein.

 

(b) No Pension Plan is subject to Part 3 of Title I of ERISA, Section 412 of the Code or Title IV of ERISA. No Pension Plan is a “multi-employer plan,” within the meaning of Section 3(37) of ERISA.

 

(c) Neither the Company nor any Affiliated Organization maintains, contributes to or has or could have any liability of any nature, whether fixed or contingent, with respect to medical, health, life or other welfare benefits for present or future terminated employees or their spouses or dependents other than as required by Part 6 of Subtitle B of Title I of ERISA or any comparable state law.

 

(d) The Company does not and could not have any material liability arising directly or indirectly in connection with any failure of the Company or any Affiliated Organization to comply with Section 4980B of the Code or Part 6 of Subtitle B of Title I of ERISA.

 

(e) The Company has delivered to Purchaser, true and complete copies of: (i) all Pension Plans and related trust agreements or other agreements or contracts evidencing any funding vehicle with respect thereto; (ii) the three most recent annual reports on Treasury Form 5500, including all schedules and

 

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attachments thereto, with respect to any Pension Plan for which such a report is required; (iii) the form of summary plan description, including any summary of material modifications thereto or other modifications communicated to participants, currently in effect with respect to each Pension Plan for which such is required; (iv) the most recent determination letter with respect to each Pension Plan intended to qualify under Section 401(a) of the Code; (v) a copy of the notice required under ERISA Section 204(h) for any Pension Plan for which benefit accruals have been frozen; (vi) all professional opinions, material internal memoranda, material correspondence with regulatory authorities and administrative policies, manual, interpretations and the like with respect to each Pension Plan; and (viii) complete and accurate employment records showing for each Transferred Employee (as defined herein), the following: name, address, Social Security number, date of birth, date of hire, rate of pay, marital status, and citizenship or immigration status.

 

(f) No action or omission of the Company or any director, officer, employee or agent thereof in any way restricts, impairs or prohibits the Purchaser or any successor of the Purchaser from amending or terminating any Pension Plan in accordance with the express terms of any such plan and applicable law.

 

(g) Nothing has occurred or failed to occur with respect to any Pension Plan, any employee benefit as such term is defined in Section 3(1) of ERISA or any other compensation plan which could result in any liability to the Purchaser or any successor of the Purchaser other than a liability expressly assumed pursuant to this Agreement.

 

2.18.

Bank Accounts.

 

The Disclosure Schedule sets forth the names of all financial institutions, investment banking and brokerage houses, and other similar institutions at which the Company maintains accounts, deposits, safe deposit boxes of any nature, and the names of all persons authorized to draw thereon or make withdrawals therefrom.

 

2.19.

Contracts and Commitments; No Default.

 

(a) Except as set forth in the Disclosure Schedule, the Company:

 

(i) has no written contract, commitment, agreement or arrangement with any person or, to the Company’s knowledge, any oral contract, commitment, agreement or arrangement which (A) requires payments individually in excess of $10,000 annually or in excess of $50,000 over its term (including without limitation periods covered by any option to extend or renew by either party) and (B) is not terminable on thirty (30) days’ or less notice without cost or other Liability;

 

(ii) does not pay any person other than employees of the Company or entity cash remuneration at the annual rate (including without limitation guaranteed bonuses) of more than $50,000 for services rendered;

 

(iii) is not restricted by agreement from carrying on its businesses or any part thereof anywhere in the world or from competing in any line of business with any person or entity;

 

(iv) is not subject to any obligation or requirement to provide funds to or make any investment (in the form of a loan, capital contribution or otherwise) in any person or entity;

 

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(v) is not party to any agreement, contract, commitment or loan to which any of its directors, officers or shareholders or any Affiliate or Associate (or former Affiliate or Associate) thereof is a party;

 

(vi) is not subject to any outstanding sales or purchase contracts, commitments or proposals which is anticipated to result in any loss upon completion or performance thereof;

 

(vii) is not party to any purchase or sale contract or agreement that calls for aggregate purchases or sales in excess over the course of such contract or agreement of $10,000 or which continues for a period of more than twelve months (including without limitation periods covered by any option to renew or extend by either party) which is not terminable on sixty (60) days’ or less notice without cost or other Liability at or any time after the Closing; and

 

(viii) has no distributorship, dealer, manufacturer’s representative, franchise or similar sales contract relating to the payment of a commission.

 

(b) True and complete copies (or summaries, in the case of oral items) of all items disclosed pursuant to Section 2.19 have been made available to the Purchaser for review. To the best knowledge of the Company, following due inquiry, except as set forth in the Disclosure Schedule, all such items are valid and enforceable by and against the Company in accordance with their respective terms; the Company is not in breach, violation or default, however defined, in the performance of any of its obligations thereunder, and no facts and circumstances exist which, whether with the giving of due notice, lapse of time, or both, would constitute such a breach, violation or default thereunder or thereof; and to the best knowledge of the Company, no other parties thereto are in breach, violation or default, however defined, thereunder or thereof, and no facts or circumstances exist which, whether with the giving of due notice, lapse of time, or both, would constitute such a breach, violation or default thereunder or thereof.

 

2.20.

Orders, Commitments and Returns.

 

Except as set forth in the Disclosure Schedule, all accepted and unfulfilled orders for the sale of products and the performance of services entered into by the Company and all outstanding contracts or commitments for the purchase of supplies, materials and services were made in bona fide transactions in the ordinary course of business.

 

2.21.

Labor Matters.

 

Except as set forth in the Disclosure Schedule: (i) the Company is and has been in material compliance with all applicable Laws respecting employment and employment practices, terms and conditions of employment and wages and hours, including without limitation any such Laws respecting employment discrimination and occupational safety and health requirements, and has not and is not engaged in any unfair labor practice; (ii) there is no unfair labor practice complaint against the Company pending or, to the best knowledge of the Company, threatened before the National Labo