ASSET PURCHASE AGREEMENT

 

TABLE OF CONTENTS

 

Title
ARTICLE I DEFINITIONS AND TERMS
Section 1.1	Defined Terms
Section 1.2	Terms Generally
ARTICLE II ACQUISITION AND DISPOSITION OF ASSETS
Section 2.1	Purchase and Sale of Assets
Section 2.2	Excluded Assets
Section 2.3	Assumption and Exclusion of Liabilities
Section 2.4	Nondelivered Assets
Section 2.5	Non-Assignment if Breach
ARTICLE III PAYMENT AND DELIVERY
Section 3.1	Shareholder Real Estate Purchase Price; Purchase Price
Section 3.2	Adjustments to Purchase Price
Section 3.3	Payment of Purchase Price
Section 3.4	Earnout Payments
Section 3.5	Allocation of Consideration
Section 3.6	Closing
Section 3.7	Deliveries by the Seller
Section 3.8	Deliveries by the Shareholders
Section 3.9	Deliveries by Parent
Section 3.10	Deliveries by Purchaser
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE SELLER AND THE SHAREHOLDERS
Section 4.1	Authorization and Validity
Section 4.2	Equity; Good Title
Section 4.3	Organization
Section 4.4	No Conflict
Section 4.5	Governmental Consents
Section 4.6	Financial Statements
Section 4.7	Absence of Certain Changes or Events
Section 4.8	Absence of Undisclosed Liabilities
Section 4.9	Property; Assets
Section 4.10	Litigation and Claims; Compliance with Laws
Section 4.11	Taxes
Section 4.12	Insurance
Section 4.13	Environmental Matters
Section 4.14	Material Contracts
Section 4.15	Intellectual Property
Section 4.16	Employee Benefits; ERISA
Section 4.17	Labor Matters
Section 4.18	Records
Section 4.19	Affiliate Transactions
Section 4.20	Indebtedness
Section 4.21	Brokers, Finders, Etc.
Section 4.22	Questionable Payments
Section 4.23	Competing Business
Section 4.24	Compliance With Bulk Sales Act; Uniform Commercial Code

 

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Section 4.25	Product Warranty and Liability
Section 4.26	Naturalization of the Employees
Section 4.27	Bank Accounts
Section 4.28	Earnout Plan
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
Section 5.1	Authorization and Validity
Section 5.2	Organization
Section 5.3	No Conflict
Section 5.4	Governmental Consents
Section 5.5	Payment of Purchase Price
ARTICLE VI COVENANTS
Section 6.1	Assignment of 401(k) Sponsorship
Section 6.2	Employees
Section 6.3	Proration
Section 6.4	Cooperation
Section 6.5	Further Assurances
ARTICLE VII SURVIVAL AND INDEMNIFICATION
Section 7.1	Survival of Representations and Warranties
Section 7.2	Indemnification by the Seller and the Shareholders
Section 7.3	Indemnification by Parent and Purchaser
Section 7.4	Notice and Resolution of Claim
Section 7.5	Limitations
Section 7.6	Exclusive Remedy
Section 7.7	Mitigation of Damages
ARTICLE VIII MISCELLANEOUS
Section 8.1	Notices
Section 8.2	Amendment, Waiver
Section 8.3	Assignment
Section 8.4	Entire Agreement
Section 8.5	Parties in Interest
Section 8.6	Expenses
Section 8.7	Governing Law; Jurisdiction; Service of Process
Section 8.8	Specific Performance
Section 8.9	Transfer and Similar Taxes
Section 8.10	Counterparts
Section 8.11	Headings

 

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ASSET PURCHASE AGREEMENT

 

This ASSET PURCHASE AGREEMENT, dated as of September 12, 2005 (this “Agreement”), is made and entered into by and among Accellent Corp., a Colorado corporation (“Parent”), CE Huntsville Holdings Corp., a Delaware corporation and wholly owned subsidiary of Parent (“Purchaser”), Campbell Engineering, Inc., an Alabama corporation (the “Seller”), and each of the shareholders of the Seller signatory hereto, constituting all of the shareholders of the Seller (each hereinafter individually referred to as a “Shareholder” and collectively referred to as the “Shareholders”).

 

WITNESSETH

 

WHEREAS, the Seller is engaged in the business of providing precision machining, assembly and engineering design for the aerospace and medical industries (the “Business”);

 

WHEREAS, the Seller intends to sell, transfer and assign to Purchaser, and Purchaser intends to purchase, acquire and assume from the Seller, substantially all of the assets and certain liabilities of the Seller relating to the operation of the Business all upon the terms and subject to the conditions set forth in this Agreement;

 

WHEREAS, the Shareholders intend to sell, transfer and assign to Purchaser, and Purchaser intends to purchase, acquire and assume from the Shareholders, the Shareholder Real Estate (as hereinafter defined) upon the terms and subject to the conditions set forth in this Agreement;

 

WHEREAS, the Shareholders, who collectively own all of the outstanding capital stock of the Seller, have determined it to be in the Shareholders’ best interests that (A) the Shareholders sell, transfer and assign to Purchaser, and that Purchaser purchases, acquires and assumes from the Shareholders, the Shareholder Real Estate and (B) the Seller sell, transfer and assign to Purchaser, and that Purchaser purchases, acquires and assumes from the Seller, such assets and liabilities of the Seller as set forth in this Agreement; and

 

WHEREAS, Parent has determined it to be in its and Purchaser’s best interests for Parent to be the sole party hereunder obligated to pay, and to pay, to Seller any Earnout Amounts (as hereinafter defined) required to be paid pursuant to this Agreement.

 

NOW THEREFORE, in consideration of the mutual promises and covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:

 

ARTICLE I

DEFINITIONS AND TERMS

 

Section 1.1                                       Defined Terms.   Each capitalized term used and not otherwise defined herein shall have the respective meaning ascribed to such term in Schedule 1.1 attached hereto or in the Section referenced in such Schedule 1.1 .

 

Section 1.2                                       Terms Generally.   The definitions in Schedule 1.1 shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation” even if not followed actually by such phrase unless the context expressly provides otherwise. Unless otherwise expressly defined, terms defined in the Agreement shall have the same meanings when used in any Exhibit or Schedule and terms defined in any Exhibit or Schedule shall have the same meanings when used in the Agreement or in any other Exhibit or Schedule. Unless the context requires otherwise, references to Articles and Sections refer to Articles and Sections of this Agreement, and references to Schedules or Exhibits refer to the Schedules and Exhibits attached to this Agreement, each of which is made a part hereof for all purposes. The words “herein,” “hereof,” “hereto” and “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular provision of this

 

 

Agreement. The phrase “made available” in this Agreement shall mean that the information referred to has been made available by the party in question. The phrases “the date of this Agreement,” “the date hereof” and terms of similar import, unless the context otherwise requires, shall be deemed to refer to the date set forth in the introductory paragraph of this Agreement. References to “dollars” or “$” in this Agreement shall be deemed to refer to the applicable denomination of federal funds of the United States of America.

 

ARTICLE II

ACQUISITION AND DISPOSITION OF ASSETS

 

Section 2.1                                       Purchase and Sale of Assets.

 

(a)                                   At the Closing, upon the terms and subject to the conditions set forth in this Agreement, the Shareholders shall transfer, assign, convey and deliver to Purchaser, and Purchaser shall receive from the Shareholders, all right, title and interest in and to that certain real property listed in Schedule 2.1(a)  and the improvements thereon and the appurtenances thereto (the “Shareholder Real Estate”) free and clear of all Liens, except as otherwise contemplated herein and except for easements and non-monetary Liens which do not adversely impact the use of the Shareholder Real Estate by the Business as currently conducted. At the Closing, upon the terms and subject to the conditions set forth in this Agreement, the Seller shall transfer, assign, convey and deliver to Purchaser, and Purchaser shall receive from the Seller, all right, title and interest in and to all of the Assets free and clear of all Liens, except as otherwise contemplated herein. It is the intent of the parties hereto that the “Assets” shall mean all right, title and interest in and to substantially all of the assets useful to, used in or held for use in the Business as of the Closing Date wherever such assets are located and whether real, personal or mixed, tangible or intangible, and whether or not any such assets have any value for accounting purposes or are carried or reflected on or specifically referred to in the Seller’s books and records or financial statements, which assets shall exclude the Excluded Assets but shall include the following:

 

(i)                                      all Intellectual Property used in or useful to the conduct of the Business including those items listed but not exhaustively described in Schedule 2.1(a)(i) ;

 

(ii)                                   all contracts, agreements, contract rights, license agreements, purchase and sales orders, quotations and other executory commitments of the Seller entered into in connection with the conduct of the Business listed in Schedule 2.1(a)(ii)  (the “Contracts”);

 

(iii)                                all accounts receivable and all notes or other securities and accounts (excluding the Seller’s bank accounts) attributable to the Seller for operations of the Business on or after the Closing Date;

 

(iv)                               all computer equipment and related software and software licenses, office equipment and other personal property listed in Schedule 2.1(a)(iv) ;

 

(v)                                  all books of account and customer and supplier lists including addresses, drawings, files, papers and records of the Seller;

 

(vi)                               all deposits, advance payments, prepaid items and expenses, deferred charges, rights of offset and credits and claims for refund relating to the Seller;

 

(vii)                            all claims, rights and causes in action against third parties and all rights to insurance proceeds relating to any damage, destruction or impairment of the tangible Assets prior to the Closing Date;

 

(viii)                         all licenses, permits, consents and certificates of any regulatory, administrative or other governmental agency or body issued to or held by the Seller and necessary or incidental to the conduct of the Business (to the extent the same are transferable);

 

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(ix)                                 all of the Seller’s right, title and interest in, and benefits accruing to the Seller under, all real property owned by the Seller and all leaseholds and subleaseholds relating to real property (including all improvements thereon and appurtenances thereto);

 

(x)                                    all fixed assets, manufacturing equipment, inventory and leasehold improvements;

 

(xi)                                 all goodwill associated with the Assets, in particular, and the Seller, in general; and

 

(xii)                              all other miscellaneous items set forth in Schedule 2.1(a)(xii) .

 

(b)                                  The sale, conveyance, assignment, transfer and delivery of the Shareholder Real Estate and the Assets will be effected by delivery by the Seller and Shareholders to Purchaser of (i) a Statutory Warranty Deed or the Bill of Sale and Assignment Agreement, as applicable, (ii) executed copies of the filings, consents, approvals, notices or waivers, and copies of the instruments transferring, registering or issuing the consents, approvals, permits, licenses, permissions, registrations or other authorizations referred to herein, and (iii) such other instruments of conveyance, transfer and assignment (collectively, the “Instruments of Transfer”) as shall be necessary to vest in Purchaser full right, title and interest in and to (A) the Assets, free and clear of all Claims and Liens, whether absolute, accrued, contingent or otherwise and (B) the Shareholder Real Estate, free and clear of all Claims and Liens, whether absolute, accrued, contingent or otherwise, other than as contemplated herein and except for easements and non-monetary Liens which do not adversely impact the use of the Shareholder Real Estate by the Business as currently conducted.

 

Section 2.2                                       Excluded Assets.   The Assets shall not include (i) any original minute books, stockholder books, tax books and other similar records of the Seller (a true and complete copy of each of which has been provided to Purchaser) (ii) all cash on hand, cash equivalents and bank accounts of the Seller (which accounts contain sufficient funds to cover outstanding checks drawn on the Seller’s bank accounts as of the Closing Date), (iii) the Seller’s rights in any insurance policies, other than rights to insurance proceeds relating to any damage, destruction or impairment of the tangible Assets prior to the Closing Date, and (iv) any assets of the Seller set forth in Schedule 2.2 (collectively, the “Excluded Assets”); all of the Seller’s right, title and interest in and to which, as the same exist as of the Closing Date, shall be retained by the Seller.

 

Section 2.3                                       Assumption and Exclusion of Liabilities.

 

(a)                                   Upon the terms and subject to the conditions of this Agreement, at the Closing, Purchaser will assume and agree to pay, perform and discharge as and when due only the following liabilities and obligations of the Seller (collectively, the “Assumed Liabilities”): (i) those current liabilities and obligations (including those relating to accounts payable and accrued but unpaid employee payroll) of the Seller listed in Schedule 2.3(a)(i) ; (ii) the future obligations of the Seller as of the Closing Date under the contracts and agreements described in Schedule 2.1(a)(ii)  (except to the extent otherwise provided in such Schedule), together with such other contractual obligations that relate solely to the Business that have been entered into in the ordinary course of business of the Seller consistent with past practices and have been disclosed to Purchaser prior to the Closing, including warranty obligations solely to retool or replace defective products sold in the ordinary course of business in an amount not to exceed TWENTY-FIVE THOUSAND DOLLARS $25,000 in any trailing twelve (12) month period of the Business (it being acknowledged that Purchaser assumes no other express or implied warranty obligations of the Seller whatsoever, including any warranty obligations with respect to products liability or monetary damages as a result of the manufacture of defective products); and (iii) all accrued vacation and sick leave of the Seller’s employees who will be employed by Purchaser following the Closing Date as set forth in Schedule 2.3(a)(iii) . The assumption of the Assumed Liabilities by Purchaser will be effected by delivery by Purchaser to the Seller of the duly executed Instruments of Transfer.

 

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(b)                                  Except as explicitly set for above in Section 2.3(a), the Seller shall retain, and Purchaser shall not assume, and nothing contained in this Agreement shall be construed as an assumption by Purchaser of, any other liabilities, obligations or undertakings of the Seller (or any Subsidiary, division, associate or Affiliate of the Seller, or of any Person) of any nature whatsoever, whether accrued, absolute, fixed or contingent, known or unknown, due or to become due, unliquidated or otherwise, including any liabilities relating to (i) all Indebtedness of the Seller, (ii) Taxes with respect to or attributable to the Assets for all taxable periods through the Closing Date, Taxes with respect to or attributable to the properties, Business or operations of the Seller or any Subsidiary, division, associate or Affiliate of the Seller and Taxes of the Seller with respect to or attributable to the transactions contemplated hereby or otherwise, (iii) any Liabilities associated with the Excluded Assets and (iv) any Liabilities associated with the Assets that arise or relate to events that occurred prior to the Closing Date. The Seller shall remain responsible for all of the liabilities, obligations and undertakings of the Seller not expressly assumed by Purchaser in Section 2.3(a). Purchaser is not assuming any liabilities, obligations or undertakings whatsoever of the Shareholders.

 

Section 2.4                                       Nondelivered Assets.   Notwithstanding anything else contained in this Agreement to the contrary, in the event that an Asset is not delivered by the Seller to Purchaser at Closing (a “Nondelivered Asset”), the Seller shall deliver such Nondelivered Asset to Purchaser as soon as the Seller has actual knowledge of the existence of such Nondelivered Asset.

 

Section 2.5                                       Non-Assignment if Breach.   Notwithstanding anything contained in this Agreement to the contrary, this Agreement shall not constitute an agreement to assign any of the Assets if the attempted assignment, as a result of the absence of the consent or authorization of a third party, would constitute a breach or default under any lease, agreement, Liens or commitment or would in any way adversely affect the rights, or increase the obligations, of any party or any Subsidiary with respect thereto or would otherwise affect the ability of Purchaser to receive the benefit of the Assets. If any such consent or authorization is not obtained, or if an attempted assignment or assumption would be ineffective or would adversely affect the rights or benefits or increase the obligations of Purchaser with respect to any such Assets, then the parties shall enter into such reasonable cooperative arrangements (including sublease, agency, partial closing, management, indemnity or payment arrangements and enforcement at the cost and for the benefit of Purchaser of any and all rights of the Seller against an involved third party) to provide the parties with such benefits and obligations as most closely approximate those contemplated by this Agreement.

 

ARTICLE III

PAYMENT AND DELIVERY

 

Section 3.1                                       Shareholder Real Estate Purchase Price; Purchase Price.   The total purchase price to be paid to the Shareholders in respect of the Shareholder Real Estate (the “Shareholder Real Estate Purchase Price”) under this Agreement shall be an amount equal to FIVE HUNDRED TWENTY-EIGHT THOUSAND DOLLARS ($528,000), which amount shall be payable in the manner provided in Section 3.3 below. The total purchase price to be paid to the Seller (the “Purchase Price”) under this Agreement shall be an amount up to TWENTY-NINE MILLION SIX HUNDRED THOUSAND DOLLARS ($29,600,000), which amount shall be payable in the manner provided in Section 3.3 and Section 3.4 below.

 

Section 3.2                                       Adjustments to Purchase Price.

 

(a)                                   The Purchase Price will be subject to the following adjustments on the Closing Date, based on the difference between the Net Working Capital Balance of the Seller as of the close of business on the day immediately prior to the Closing Date as set forth in a schedule delivered by the Seller to Purchaser prior to the Closing Date (the “Closing Net Working Capital Balance”) and TWO

 

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MILLION FOUR HUNDRED TWENTY-TWO THOUSAND FIVE HUNDRED TWENTY-SEVEN DOLLARS ($2,422,527) (the “Baseline Net Working Capital Balance”):

 

(i)                                      if the Baseline Net Working Capital Balance exceeds the Closing Net Working Capital Balance, the Purchase Price will be decreased by the amount by which the Baseline Net Working Capital Balance exceeds the Closing Net Working Capital Balance; and

 

(ii)                                   if the Baseline Net Working Capital Balance is equal to or less than the Closing Net Working Capital Balance, the Purchase Price will not be adjusted pursuant to this Section 3.2(a).

 

For purposes of this Agreement, the “Net Working Capital Balance” of the Seller shall mean all current assets of the Seller (including all amounts owed to the Seller by any of the Shareholders) less all current liabilities (excluding the current portion of any long-term Indebtedness and any Indebtedness comprised of capital leases), calculated with respect to both the Baseline Net Working Capital Balance and the Closing Net Working Capital Balance, in accordance with GAAP applied on a consistent basis throughout the periods covered thereby.

 

(b)                                  Following the Closing, the adjustments to the Purchase Price pursuant to Section 3.2(a) will be subject to review by Purchaser in accordance with the following procedure:

 

(i)                                      Purchaser shall have until ninety (90) days after the Closing Date (the “Verification Period”) to verify the Seller’s determinations of the Closing Net Working Capital Balance. Any adjustments to such determinations shall be made by written notice to the Seller within the Verification Period (an “Adjustment Notice”) setting forth (A) Purchaser’s objections to the Seller’s determination of the Closing Net Working Capital Balance, (B) Purchaser’s determination of the Closing Net Working Capital Balance, and (C) the proposed adjustment to decrease the Purchase Price (the “Proposed Purchase Price Adjustment”). If Purchaser does not deliver an Adjustment Notice to the Seller within the Verification Period, the Seller’s determination of the Closing Net Working Capital Balance shall be final and binding upon the parties hereto.

 

(ii)                                   To the extent that the Seller has any objection to the Proposed Purchase Price Adjustment, such objection shall be made by written notice to Purchaser (the “Objection Notice”) within fifteen (15) days after delivery of the Adjustment Notice (the “Objection Period”). If the Seller does not deliver an Objection Notice to the Proposed Purchase Price Adjustment within the Objection Period, the Purchase Price shall be adjusted by an amount equal to such Proposed Purchase Price Adjustment and the Seller shall pay Purchaser an amount equal to the Proposed Purchase Price Adjustment or Purchaser may offset the Proposed Purchase Price Adjustment against the Escrow Amount and the Earnout Amounts as set forth below.

 

(iii)                                If the Seller delivers an Objection Notice in response to any Adjustment Notice delivered by Purchaser, and Purchaser and the Seller are unable to agree upon the amount of any Proposed Purchase Price Adjustment within fifteen (15) days after delivery of the Objection Notice, then a nationally recognized accounting firm to be mutually agreed upon based on good faith negotiations (the “Auditor”), shall be requested to conduct a review and determine the amount of the Closing Net Working Capital Balance. The Auditor shall be instructed in performing such review that Purchaser and the Seller shall each be provided with copies of any and all correspondence and drafts distributed by the Auditor to any party. Prior to issuing its final determination, Purchaser and the Seller shall each have the opportunity to provide the Auditor with any additional information that such party deems relevant, provided that the Auditor shall not be required to use any such information in connection with its review and determination of the Closing Net Working Capital Balance. Upon completion of its review and determination, the Auditor shall promptly deliver copies of its report to Purchaser and the Seller, setting forth the Auditor’s determination of the Closing Net Working Capital Balance (the “Auditor’s Report”). The Auditor’s Report will be conclusive and binding upon both Purchaser and the Seller, and Purchaser shall be entitled to a

 

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Purchase Price Adjustment by an amount equal to the excess, if any, of the Closing Net Working Capital Balance as determined by the Seller on or before the Closing Date over the Closing Net Working Capital Balance determined by the Auditor and reported in the Auditor’s Report and, unless such excess is paid in cash by the Seller as contemplated pursuant to Section 3.2(b)(ii), to offset such excess against the Escrow Amount and the Earnout Amount as described below. Fifty percent (50%) of the costs and expenses of the Auditor and the Auditor’s Report contemplated by this Section 3.2(b)(iii) shall be borne by Purchaser and the remainder of such costs shall be borne by the Seller and the Shareholders.

 

Section 3.3                                       Payment of Purchase Price.

 

(a)                                   FIVE HUNDRED TWENTY-EIGHT THOUSAND DOLLARS ($528,000) shall be paid in cash on the Closing Date by Purchaser for the benefit of the Shareholders in respect of the Shareholder Real Estate by inter-bank wire transfers of immediately available federal funds payable in the amounts and to the Persons set forth in Schedule 3.3(a) .

 

(b)                                  SEVENTEEN MILLION SIX HUNDRED THOUSAND DOLLARS ($17,600,000) of the Purchase Price, less any adjustments to the Purchase Price made pursuant to Section 3.2, less the Escrow Amount, shall be paid in cash on the Closing Date by Purchaser (the “Closing Cash Payment”) for the benefit of the Seller by inter-bank wire transfers of immediately available federal funds payable in the amounts and to the Persons set forth in Schedule 3.3(b) .

 

(c)                                   TWELVE MILLION DOLLARS ($12,000,000) of the Purchase Price shall be paid after the Closing, if at all, by Parent for the benefit of the Seller pursuant to the terms of the earnout arrangement set forth in Section 3.4 hereof.

 

(d)                                  FOUR HUNDRED THOUSAND DOLLARS ($400,000) (the “Escrow Amount”) of the Purchase Price shall not be paid to the Seller at Closing and shall instead be deposited by Purchaser into an account to be managed and paid out by the Escrow Agent in accordance with the terms of an Escrow Agreement, substantially in the form attached hereto as Exhibit A (the “Escrow Agreement”), to be entered into among Parent, Purchaser, the Seller and the Escrow Agent at the Closing.

 

(e)                                   Notwithstanding any other provision in this Agreement to the contrary, Seller hereby acknowledges and agrees that the payment of any Earnout Amounts hereunder shall be the sole and exclusive obligation of Parent.

 

(f)                                     Notwithstanding any other provision in this Agreement to the contrary, in the event that either (i) the Purchase Price is adjusted pursuant to Section 3.2(b) or (ii) Parent or Purchaser becomes entitled to indemnification under Article VII, Purchaser may offset all or any portion of the Escrow Amount, on a dollar-for-dollar basis, against the full amount of any such adjustment or right to indemnification.

 

Section 3.4                                       Earnout Payments.   The Seller shall be entitled to receive the 2005 Earnout Amount and the 2006 Earnout Amount, or such applicable portions thereof, if any, as deferred payment of the Purchase Price pursuant to the terms set forth below:

 

(a)                                   If, and only if, the EBITDA of the Business for the fiscal year ending December 31, 2005 (the “2005 EBITDA”) is greater than THREE MILLION THREE HUNDRED FIFTY THOUSAND DOLLARS ($3,350,000) (the “2005 Baseline EBITDA”), then Parent shall pay to the Seller an amount (the “2005 Earnout Amount”) in cash equal to the product of (i) TEN MILLION DOLLARS ($10,000,000) multiplied by (ii) a fraction, the numerator of which shall be the difference between the 2005 EBITDA and the 2005 Baseline EBITDA, and the denominator of which shall be the difference between the 2005 Target EBITDA and the 2005 Baseline EBITDA, subject to a maximum possible 2005 Earnout Amount in all circumstances of TEN MILLION DOLLARS ($10,000,000).

 

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(b)                                  Parent shall pay to the Seller an amount (the “2006 Earnout Amount”) in cash equal to the lesser of (i) the applicable 2006 Earnout Cap or (ii) five times the EBITDA of the Business for the fiscal year ending December 31, 2006 (the “2006 EBITDA”), less EIGHTEEN MILLION DOLLARS ($18,000,000), less the 2005 Earnout Amount. For purposes of this Section 3.4(b), the “2006 Earnout Cap” shall equal (i) FOUR MILLION DOLLARS ($4,000,000) if the 2005 EBITDA is greater than FOUR MILLION FOUR HUNDRED THOUSAND DOLLARS ($4,400,000) or (ii) THREE MILLION DOLLARS ($3,000,000) if the 2005 EBITDA is less than or equal to FOUR MILLION FOUR HUNDRED THOUSAND DOLLARS ($4,400,000).

 

(c)                                   Notwithstanding anything to the contrary contained herein, in the event that either (i) the Purchase Price is adjusted pursuant to Section 3.2(b) or (ii) Parent or Purchaser becomes entitled to indemnification under Article VII, Parent may, upon five (5) days prior written notice to the Seller, offset all or any portion of the Earnout Amounts, on a dollar-for-dollar basis, against the full amount of any such right to indemnification.

 

(d)                                  On or before April 15, 2006, Parent shall provide to the Seller unaudited financial statements of the Business for the fiscal year ended December 31, 2005, together with a detailed written statement of its calculation of the 2005 EBITDA and the 2005 Earnout Amount, if any, related thereto (the “2006 Statement”), and on or before April 15, 2007, Parent shall provide to the Seller unaudited financial statements of the Business for the fiscal year ended December 31, 2006, together with a detailed written statement of its calculation of the 2006 EBITDA and the 2006 Earnout Amount, if any, related thereto (the “2007 Statement”). In each instance, Parent shall provide the Seller access to Purchaser’s books and records (including financial statements) during normal business hours for the sole purpose of verifying the Earnout Amounts. The 2005 Earnout Amount and the 2006 Earnout Amount, to the extent not offset in accordance with Section 3.4(c), shall be payable within thirty (30) days after (i) receipt by Parent of written notice from the Seller that it has accepted, in the case of the 2005 Earnout Amount, the 2006 Statement and, in the case of the 2006 Earnout Amount, the 2007 Statement, or (ii) becoming conclusive and binding pursuant to Section 3.4(e) below. Each such Earnout Amount, to the extent not offset in accordance with Section 3.4(c), shall be made by wire transfer of immediately available funds to an account designated by the Seller. In addition to the 2006 Statement and the 2007 Statement, for each completed fiscal quarter after the Closing Date other than the fourth fiscal quarter of any fiscal year, Parent shall provide to the Seller, on a quarterly basis, detailed written statements of its calculation of the EBITDA of the Business for each such quarter within fifty-five (55) days after the end of each such fiscal quarter through the period ended September 30, 2006. Purchaser covenants and agrees that it shall use commercially reasonable efforts to market and sell products that make up the Business in a commercially prudent manner during the period between the Closing Date and January 1, 2007.

 

(e)                                   The Seller shall notify Parent in writing (the “Parent’s Notice”) within thirty (30) days after receipt of the 2006 Statement or the 2007 Statement, as the case may be (a “Statement”), with respect to its acceptance or dispute of such Statement. In the event that the Seller disputes such a Statement, the Seller shall set forth in such notice the facts of the dispute and, to the best of its ability, its calculation of the Earnout Amount in question. Parent and the Seller shall meet and use commercially reasonable efforts to resolve the items or amounts in dispute. If the parties are unable to reach an agreement within thirty (30) days after Parent’s receipt of the Seller’s disagreement notification, then a nationally recognized accounting firm to be mutually agreed upon based on good faith negotiations (the “Accounting Referee”) shall be requested to conduct a review of the disputed items or amounts and compute the Earnout Amount in question. In making its calculation, the Accounting Referee shall consider only the items or amounts in dispute (and to the extent required, any other amounts necessary to derive the disputed items or amounts). Such determination shall be made within thirty (30) days after the date on which the Accounting Referee begins its review and shall be binding on the parties.

 

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The fees, costs and expenses of the Accounting Referee shall be shared equally between the Seller and Parent.

 

(f)                                     In connection with this Section 3.4, upon reasonable notice and during Parent’s and Purchaser’s normal business hours, the Seller and its representatives (including accountants) shall have the right to inspect the books and records relating to the Business as conducted by Purchaser after the Closing Date. In the event of a dispute under Section 3.4(e) above, Parent shall ensure access of the Accounting Referee to Parent’s auditor.

 

(g)                                  In calculating the 2005 EBITDA, the EBITDA of the Seller for the period beginning on January 1, 2005 and ending on the Closing Date as determined by reference to the financial statements of the Seller described in Section 4.6 hereof, shall be added to, and included within, the 2005 EBITDA. In calculating the 2005 EBITDA and the 2006 EBITDA, such calculations (i) shall not include (A) any expenses allocated or incurred by the Seller or Purchaser as a result of the transactions contemplated by this Agreement, (B) any management fees, overhead fees or similar fees or allocations paid by, or allocated to, the Business from any other business or Affiliate of Purchaser, (C) any specified non-recurring shareholder expenses and costs set forth on Schedule 3.4(g)(i)(C) , (D) any “extraordinary items” of gain or loss as that term is defined by GAAP, (E) for the period that the replacement employee of each Shareholder and such Shareholder are simultaneously employed by Purchaser, such Shareholder’s employment compensation and benefits, or (F) excess benefits paid to the Shareholders (including life insurance premium contributions and payments associated with the provision of automobiles to the Shareholders) and charitable contributions made by the Seller, in each instance prior to the Closing Date, in an aggregate amount up to FIFTY THOUSAND DOLLARS ($50,000), and (ii) shall include a deemed monthly rental expense of EIGHT THOUSAND DOLLARS ($8,000) associated with the Shareholder Real Estate.

 

(h)                                  Notwithstanding anything to the contrary contained in this Agreement, the maximum aggregate amount that may be paid to the Seller under this Agreement in all circumstances shall be TWENTY-NINE MILLION SIX HUNDRED THOUSAND DOLLARS ($29,600,000).

 

Section 3.5                                       Allocation of Consideration.   The aggregate consideration paid by Purchaser to the Seller pursuant to this Article III shall be allocated among the Assets according to the determination of an independent appraisal to be conducted by an appraiser mutually agreed upon by Purchaser and the Seller. The allocation of the Purchase Price as determined by such appraiser shall be binding upon the parties and each party hereto shall file all Tax Returns (including Form 8594) in a manner consistent with such allocation. Notwithstanding anything to the contrary contained herein, the aggregate amount of consideration to be allocated to the Non-Competition Agreement for the Seller and the Shareholders shall be TWO HUNDRED THOUSAND DOLLARS ($200,000). The cost of such independent appraiser shall be borne by Purchaser.

 

Section 3.6                                       Closing.   The sale, conveyance, assignment, transfer and delivery of the Assets by the Seller and payment of the Closing Cash Payment by Purchaser (hereinafter called the “Closing”) shall take place at the Huntsville, Alabama offices of Bradley Arant Rose & White LLP on the date of the execution of this Agreement, or on such other date or at such other time and place (including remotely or by facsimile) as may be mutually agreed upon by the parties hereto. The date on which the Closing occurs is referred to herein as the “Closing Date.” Notwithstanding the foregoing or any other provision of this Agreement to the contrary, the parties hereto agree that the Closing shall be deemed to take effect at 12:01 A.M. (Eastern Standard Time) on the Closing Date.

 

Section 3.7                                       Deliveries by the Seller.   At the Closing, the Seller shall deliver to Purchaser, and in the case of subsections (g) and (h) below, Parent:

 

(a)                                   A duly executed Bill of Sale and Assignment Agreement;

 

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(b)                                  A duly executed Statutory Warranty Deed for the owned Real Property of the Seller and Title Policies or unconditional commitments therefore paid for by the Seller;

 

(c)                                   Such other Instruments of Transfer as shall be necessary to vest in Purchaser all of the Seller’s right, title and interest in and to the Assets, free and clear of all Liens;

 

(d)                                  The resolutions duly adopted by the Seller’s board of directors and the Shareholders authorizing (i) the execution and delivery of, and performance by the Seller of its obligations under, this Agreement and the other agreements contemplated hereby and (ii) the assignment of the sponsorship of the Seller’s 401(k) plan to Purchaser;

 

(e)                                   A duly executed certificate of the secretary or an assistant secretary of the Seller, dated the Closing Date, in form and substance reasonably satisfactory to Purchaser, as to (i) the currency and authenticity of the articles of incorporation and the bylaws of the Seller, (ii) the currency and authenticity of the resolutions duly adopted by the Seller’s board of directors and Shareholders authorizing (A) the execution and delivery of, and performance by the Seller of its obligations under, this Agreement and the other agreements contemplated hereby and (B) the assignment of the sponsorship of the Seller’s 401(k) plan to Purchaser and (iii) the incumbency and signatures of the officers of the Seller executing this Agreement or any other agreement contemplated hereby.

 

(e)                                   Copies of all consents, approvals, authorizations, agreements and other documentation required to be obtained by the Seller to consummate the transactions contemplated by this Agreement without breaching any of the Seller’s representations or warranties;

 

(f)                                     Payoff letters stating the payoff amounts for the Seller’s Indebtedness relating to the Assets;

 

(g)                                  A duly executed Escrow Agreement;

 

(h)                                  A duly executed Non-Competition Agreement (the “Non-Competition Agreement”) substantially in the form attached hereto as Exhibit B ; and

 

(i)                                      Such other documents, instruments and writings reasonably requested by Parent or Purchaser at or prior to the Closing.

 

Purchaser will thereupon take actual possession of the Assets.

 

Section 3.8                                       Deliveries by the Shareholders.   At the Closing, the Shareholders shall deliver to Purchaser, and in the case of subsections (b) and (c) below, Parent:

 

(a)                                   A duly executed Statutory Warranty Deed for the Shareholder Real Estate and Title Policies or unconditional commitments therefore paid for by the Shareholders;

 

(b)                                  A duly executed Escrow Agreement;

 

(c)                                   A duly executed Non-Competition Agreement;

 

(d)                                  A duly executed Transition Services and Consulting Agreement substantially in the form attached hereto as Exhibit C (the “Transition Services and Consulting Agreement”) executed by Dr. Richard Campbell;

 

(e)                                   A duly executed Transition Services Agreement substantially in the form attached hereto as Exhibit D (the “Transition Services Agreement”) executed by Mrs. [Sue] Campbell; and

 

(f)                                     Such other documents, instruments and writings reasonably requested by Parent or Purchaser at or prior to the Closing.

 

Section 3.9                                       Deliveries by Parent.   At the Closing, Parent shall deliver to the Seller, and in the case of subsections (c) and (d) below, the Shareholders:

 

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(a)                                   The resolutions duly adopted by Parent’s board of directors authorizing the execution and delivery of, and performance by Parent of its obligations under, this Agreement and the other agreements contemplated hereby;

 

(b)                                  A duly executed certificate of the secretary or an assistant secretary of Parent, dated the Closing Date, in form and substance reasonably satisfactory to the Seller, as to (i) the currency and authenticity of the articles of incorporation and the bylaws of Parent, (ii) the currency and authenticity of the resolutions duly adopted by Parent’s board of directors authorizing the execution and delivery of, and performance by Parent of its obligations under, this Agreement and the other agreements contemplated hereby and (iii) the incumbency and signatures of the officers of Parent executing this Agreement or any other agreement contemplated hereby;

 

(c)                                   A duly executed Escrow Agreement;

 

(d)                                  A duly executed Non-Competition Agreement; and

 

(e)                                   Such other documents, instruments and writings reasonably requested by the Seller at or prior to the Closing.

 

Section 3.10                                 Deliveries by Purchaser.   At the Closing, Purchaser shall deliver to the Seller all of the following deliverables other than those contemplated by subsections (b), (h) and (i) below, and to the Shareholders the deliverables contemplated by subsections (b), (h), (i) (f) and (g) below:

 

(a)                                   The Closing Cash Payment by inter-bank wire transfer of immediately available federal funds of the United States of America, which amount shall be paid and delivered to or for the benefit of the Seller in the amounts and to the Persons set forth on Schedule 3.3(b) ;

 

(b)                                  The Shareholder Real Estate Purchase Price by inter-bank wire transfer of immediately available federal funds of the United States of America, which amount shall be paid and delivered to or for the benefit of the Shareholders in the amounts and to the Persons set forth on Schedule 3.3(a) ;

 

(c)                                   A duly executed Bill of Sale and Assignment Agreement;

 

(d)                                  The resolutions duly adopted by Purchaser’s board of directors authorizing the execution and delivery of, and performance by Purchaser of its obligations under, this Agreement and the other agreements contemplated hereby;

 

(e)                                   A duly executed certificate of the secretary or an assistant secretary of Purchaser, dated the Closing Date, in form and substance reasonably satisfactory to the Seller, as to (i) the currency and authenticity of the articles of incorporation and the bylaws of Purchaser, (ii) the currency and authenticity of the resolutions duly adopted by Purchaser’s board of directors authorizing the execution and delivery of, and performance by Purchaser of its obligations under, this Agreement and the other agreements contemplated hereby and (iii) the incumbency and signatures of the officers of Purchaser executing this Agreement or any other agreement contemplated hereby;

 

(f)                                     A duly executed Escrow Agreement;

 

(g)                                  A duly executed Non-Competition Agreement;

 

(h)                                  A duly executed Transition Services and Consulting Agreement;

 

(i)                                      A duly executed Transition Services Agreement; and

 

(j)                                      Such other documents, instruments and writings reasonably requested by the Seller at or prior to the Closing.

 

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ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE SELLER AND THE SHAREHOLDERS

 

Seller and each of the Shareholders hereby jointly and severally represent and warrant to Parent and Purchaser that the statements contained in this Article IV are accurate and complete as of the date hereof, except as set forth in the disclosure schedules accompanying this Agreement. The disclosure schedules are arranged in numbered and lettered paragraphs corresponding to the numbered and lettered Sections contained in this Article IV.

 

Section 4.1                                       Authorization and Validity.   The Seller has full corporate power and authority to enter into this Agreement and the other documents and instruments to be executed and delivered by the Seller pursuant hereto and to carry out its obligations hereunder and thereunder. The Shareholders have full individual power and the legal capacity to enter into this Agreement and the other documents and instruments to be executed and delivered by the Shareholders pursuant hereto (to the extent that such Person is a party hereto or thereto) and to carry out the Shareholders’ obligations hereunder and thereunder. The execution, delivery and performance of this Agreement by the Seller and the other documents and instruments to be executed and delivered by the Seller pursuant hereto, and the consummation by the Seller of the transactions contemplated hereby and thereby, have been duly and validly authorized by the board of directors of the Seller and the Shareholders and no other corporate act or proceeding on the part of the Seller or the Shareholders, as applicable, is necessary to authorize the execution and delivery by the Seller of this Agreement or the other documents or instruments to be executed and delivered by the Seller pursuant hereto, or the consummation by the Seller of the transactions contemplated hereby or thereby. This Agreement and the other documents and instruments to be executed and delivered by the Seller or the Shareholders pursuant hereto (to the extent that such Person is a party hereto or thereto) have been duly and validly executed and delivered by the Seller and the Shareholders (to the extent that such Person is a party hereto or thereto) and, assuming this Agreement and the other documents and instruments to be executed and delivered by the Seller or the Shareholders pursuant hereto (to the extent that such Person is a party hereto or thereto) are the valid and binding obligation of any other parties hereto or thereto, constitutes a valid and binding obligation of the Seller and the Shareholders (to the extent that such Person is a party hereto or thereto) enforceable against the Seller and the Shareholders (to the extent that such Person is a party hereto or thereto) in accordance with its terms, except that (i) such enforcement may be subject to applicable bankruptcy, insolvency or other similar laws, now or hereafter in effect, affecting creditors’ rights generally, and (ii) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought.

 

Section 4.2                                       Equity; Good Title.

 

(a)                                   As of the date hereof, the authorized capital stock of the Seller consists of one thousand (1,000) shares of common stock, par value $1.00 per share (the “Common Stock”). As of the date hereof, one thousand (1,000) shares of the Common Stock are issued and outstanding, all of which, when issued, were duly authorized, validly issued, fully paid and nonassessable and free of any preemptive or other similar rights. No other shares of the Capital Stock of the Seller are issued and outstanding.

 

(b)                                  All of the outstanding shares of Capital Stock of the Seller are owned beneficially and of record by the Shareholders, free and clear of all Liens and the Shareholders are bound by the terms of this Agreement.

 

(c)                                   There are no outstanding subscriptions, options, warrants, calls, rights, contracts, commitments, understandings, restrictions or arrangements relating to the issuance, sale, transfer or voting of any shares of Capital Stock of the Seller, including any rights of conversion or exchange under any outstanding securities or other instruments.

 

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(d)                                  The Seller has no Subsidiaries. The Seller does not own any equity or other ownership interests in any other Person.

 

Section 4.3                                       Organization.   The Seller (a) is a corporation, duly incorporated, validly existing and in good standing under the laws of the State of Alabama, and (b) has full power and authority to own all of its properties and assets, including the Assets, and to carry on the Business as it is now being conducted. The Seller is duly licensed or qualified to do business and is in good standing as a foreign corporation in each jurisdiction where the ownership, lease or operation of its assets and properties or the conduct of the Business requires such license or qualification, except where the failure to be so licensed or qualified would not have a Material Adverse Effect. The Seller has delivered to Purchaser a complete and correct copy of the articles of incorporation, bylaws and other organizational documents of the Seller. Such articles of incorporation, bylaws and other organizational documents are in full force and effect and the Seller is not in violation of any provision of such articles of incorporation, bylaws or organizational documents.

 

Section 4.4                                       No Conflict.   Neither the execution, delivery or performance of this Agreement or the other documents and instruments to be executed and delivered by the Seller or the Shareholders pursuant hereto, nor the consummation by the Seller or the Shareholders of the transactions contemplated hereby or thereby, nor compliance by the Seller or the Shareholders with any of the provisions hereof or thereof will (a) conflict with or result in any breach of any provision of the articles of incorporation or bylaws of the Seller, (b) except as set forth in Schedule 4.4(b) , constitute a change in control under, or require the consent from or the giving of notice to a third party, result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, amendment, cancellation or acceleration) under, or result in the creation of any Lien upon or affecting any of the Assets or the Shareholder Real Estate, including the Contracts, pursuant to, any of the terms, conditions or provisions of any contractual obligation of the Seller or the Shareholders, (c) violate any order, writ, injunction, decree, statute, rule or regulation of any Governmental Authority applicable to the Seller or the Shareholders or to which any of their properties or assets (including the Assets and the Shareholder Real Estate) may be bound, or (d) result in triggering of any right of first refusal or other right under any joint venture or other agreement to which the Seller or the Shareholders are a party.

 

Section 4.5                                       Governmental Consents.   No consent, order or authorization of, or registration, declaration or filing with, any Governmental Authority is required on the part of the Seller or the Shareholders in connection with the execution, delivery and performance of this Agreement or the consummation of the transactions contemplated hereby by the Seller or the Shareholders.

 

Section 4.6                                       Financial Statements.   The Seller has previously furnished to Purchaser the Financial Statements and the unaudited consolidated balance sheets and statements of income, changes in shareholders’ equity and cash flow as of and for the three months ended March 31, 2005 for the Seller (the “First Quarter Financial Statements”) and the unaudited consolidated balance sheets and statements of income, changes in shareholders’ equity and cash flow as of and for the three and six months ended June 30, 2005 for the Seller (the “Second Quarter Financial Statements”). Except as set forth in Schedule 4.6 , the Financial Statements (including the notes thereto), the First Quarter Financial Statements and the Second Quarter Financial Statements have been prepared in accordance with GAAP applied on a consistent basis during the periods involved, fairly present the financial position of the Seller on the dates thereof, fairly present the results of operations of the Seller for the periods involved, and are in accordance with the books and records of the Seller (which books and records are accurate). Reserves are reflected on the balance sheets in the Financial Statements, the First Quarter Financial Statements and the Second Quarter Financial Statements against assets in amounts that have been established on a basis consistent with the past practice.

 

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Section 4.7                                       Absence of Certain Changes or Events.   Except as set forth in Schedule 4.7 , since June 30, 2005 (a) the Seller has conducted the Business only in the ordinary course and consistent with past practice, (b) there have not been any developments or events with respect to the Business which have had or would reasonably be likely to have, individually or in the aggregate, a Material Adverse Effect and (c) except as contemplated in this Agreement, the Seller has not:

 

(i)                                      adopted any amendment to its articles of incorporation or bylaws;

 

(ii)                                   (A) sold, leased, transferred or disposed of any assets or rights, other than assets or rights that individually or in the aggregate would not be material, in either case, and other than in the ordinary course of business consistent with past practice, (B) incurred any Lien upon any assets or rights, except for Liens incurred in the ordinary course of business consistent with past practice, (C) acquired or leased any assets or rights other than in the ordinary course of business consistent with past practice, or (D) entered into any commitment or transaction with respect to (A), (B) or (C) above;

 

(iii)                                (A) incurred, assumed or refinanced any Indebtedness or (B) made any loans, advances or capital contributions to, or investments in, any Person;

 

(iv)                               paid, discharged or satisfied any liability, obligation, or Lien other than payment, discharge or satisfaction of (A) Indebtedness as it matures and becomes due and payable or (B) liabilities, obligations or Liens in the ordinary course of business consistent with past practice;

 

(v)                                  except as required in connection with the preparation of the Financial Statements, First Quarter Financial Statements and Second Quarter Financial Statements pursuant to Section 4.6, (A) changed any of the accounting or tax principles, practices or methods used by the Seller, except as required by changes in applicable Tax Laws, or (B) changed reserve amounts or policies;

 

(vi)                               entered into any employment contract or other arrangement or made any change in the compensation payable or to become payable to any Shareholder or any of its officers, employees, agents, consultants or Persons acting in a similar capacity (other than general increases in wages to employees who are not officers or Persons acting in a similar capacity or Affiliates, in the ordinary course consistent with past practice), or to Persons providing management services, entered into or amended any employment, severance, consulting, termination or other agreement or employee benefit plan or made any loans to any of its Affiliates, officers, employees, agents or consultants or Persons acting in a similar capacity or made any change in its existing borrowing or lending arrangements for or on behalf of any of such Persons pursuant to an employee benefit plan or otherwise;

 

(vii)                            paid or made any accrual or arrangement for payment of any pension, retirement allowance or other employee benefit pursuant to any existing plan, agreement or arrangement to any Affiliate, officer, employee or Person acting in a similar capacity; or paid or agreed to pay or made any accrual or arrangement for payment to any Affiliate, officers, employees or Persons acting in a similar capacity of any amount relating to unused vacation days, except payments and accruals made in the ordinary course consistent with past practice; grant, issue, accelerate or accrue salary or other payments or benefits pursuant to any pension, profit-sharing, bonus, extra compensation, incentive, deferred compensation, stock purchase, stock option, stock appreciation right, group insurance, severance pay, retirement or other employee benefit plan, agreement or arrangement, or any employment or consulting agreement with or for the benefit of any Affiliate, officer, employee, agent or consultant or Person acting in a similar capacity, whether past or present; or amend in any material respect any such existing plan, agreement or arrangement in a manner consistent with the foregoing;

 

(viii)                         entered into any collective bargaining agreement;

 

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(ix)                                 made any payments (other than regular compensation payable to officers and employees or Persons acting in a similar capacity of the Seller in the ordinary course consistent with past practice), loans, advances or other distributions to, or enter into any transaction, agreement or arrangement with, the Seller’s Affiliates, officers, employees, agents, consultants or Persons acting in a similar capacity, shareholders of their Affiliates, associates or family members;

 

(x)                                    made or authorized any capital expenditures, except in the ordinary course consistent with past practice not in excess of $100,000 individually or $250,000 in the aggregate;

 

(xi)                                 incurred any Taxes, except in the ordinary course of business consistent with past practice;

 

(xii)                              settled or compromised any Tax liability or agreed to any adjustment of any Tax attribute or made any election with respect to Taxes;

 

(xiii)                           failed to duly and timely file any Tax Return with the appropriate Governmental Authorities required to be filed by it in a true and complete and correct form and to timely pay all Taxes shown to be due thereon;

 

(xiv)                          (A) entered into, amended, renewed or permitted the automatic renewal of, terminated or waived any right under, any Material Contract, or, except in the ordinary course of business consistent with past practice, any other agreement, or (B) took any action or failed to take any action that, with or without either notice or lapse of time, would constitute a default under any Material Contract;

 

(xv)                             (A) made any change in its working capital practices generally, including accelerating any collections of cash or accounts receivable or deferring payments or (B) failed to make timely accruals, including with respect to accounts payable and liabilities incurred in the ordinary course of business consistent with past practice;

 

(xvi)                          failed to renew (at levels consistent with presently existing levels), and has not terminated or amended or failed to perform, any of its obligations or permitted any material default to exist or caused any material breach under, or entered into (except for renewals in the ordinary course of business consistent with past practice), any material policy of insurance;

 

(xvii)                       experienced any damage, destruction, or loss to its property not covered by insurance;

 

(xviii)                    disposed of or permitted to lapse any material Intellectual Property or granted any license or sublicense of any rights with respect to Intellectual Property;

 

(xix)                            experienced significant failure on the part of the Seller to operate the Business in the ordinary course and consistent with past practice so as to preserve its business operations intact or to preserve the goodwill of suppliers, customers and others having business relations with the Seller;

 

(xx)                               received, and the Seller has no Knowledge of, any notice or other indication that any key supplier, vendor or customer of the Seller will cease doing business with the Seller (whether as a result of the consummation of the transactions contemplated hereby or otherwise) in the same manner and at the same level as previously conducted with the Seller, other than changes which occur from time to time in the ordinary course of business or as a result of the expiration or completion of any contracts (for purposes of this Article IV, “key suppliers, vendors and customers” of the Seller refers to those suppliers, vendors and customers of the Seller whose business failure would be reasonably likely to result in a Material Adverse Affect on the Business or the Seller);

 

(xxi)                            except in the ordinary course of business consistent with past practice, and except as required by any Law, provided any confidential information to any Person other than Purchaser;

 

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(xxii)                         changed the compensation levels (including any bonus or formula for the calculation of any bonus) applicable to any class of the Seller’s employees;

 

(xxiii)                      declared, set aside or paid any dividend or made any distribution with respect to the Capital Stock; or

 

(xxiv)                     by action on the part of the Seller, cancelled, compromised, waived or released any rights or claims.

 

Section 4.8                                       Absence of Undisclosed Liabilities.   Except as set forth on Schedule 4.8 , the Seller has no Liabilities that would be required to be reserved against or disclosed in a financial statement prepared in accordance with GAAP, except for (i) Liabilities set forth on the face of the balance sheet, or otherwise reserved against, in the Second Quarter Financial Statements (rather than in the notes thereto), and (ii) Liabilities which have arisen after the date of the balance sheet in the Second Quarter Financial Statements in the ordinary course of business consistent with past practice (none of which, to Seller’s Knowledge, results from, arises out of, related to, is in the nature of, or was caused by any breach of contract, breach of warranty, tort, infringement, or violation of law), which in either case have not had and could not reasonably be expected to have a Material Adverse Effect.

 

Section 4.9                                       Property; Assets.

 

(a)                                   The Seller owns, or otherwise has a valid leasehold interest providing sufficient and legally enforceable rights to use, all of the property and assets necessary or otherwise material to the conduct of the Business. The Shareholders jointly own the Shareholder Real Estate in fee simple. Except as set forth in Schedule 4.9(a) , the Seller has good and marketable title to all assets reflected on the Second Quarter Balance Sheet, free and clear of all Liens; provided, however, that any Real Property may be subject to easements and non-monetary Liens which do not adversely impact the use of the Shareholder Real Estate by the Business as currently conducted. Except as set forth in Schedule 4.9(a) , all such assets which have a value in excess of $1,000, singly, are in good operating condition and repair (ordinary wear and tear excepted), have been reasonably maintained consistent with standards generally followed in the industry, are suitable for their present uses and, in the case of owned or leased structures, are structurally sound.

 

(b)                                  Schedule 4.9(b)  contains a list of all real property owned, leased or used by the Seller including the Shareholder Real Estate (the “Real Property”), indicating whether such property is owned, leased or used. Except as set forth in Schedule 4.9(b) , the current use of the Real Property by the Seller and the Shareholder Real Estate by the Shareholders does not violate the certificate of occupancy thereof or any local zoning or similar land use or other Laws and none of the structures on the Real Property encroaches upon real property of another Person, and no structure of any other Person encroaches upon any Real Property. The Seller and the Shareholders have not received notice of any pending or threatened condemnation proceeding, or of any sale or other disposition in lieu of condemnation, affecting any of the Real Property. Each parcel of Real Property abuts on or has direct vehicular access to a public road. The Seller does not own, lease or use any Real Property other than the Real Property listed in Schedule 4.9(b) . Except as set forth in Schedule 4.9(b) , the Seller has not assigned, transferred, conveyed, mortgaged, deeded in trust or encumbered any interest in the Real Property and the Shareholders have not assigned, transferred, conveyed, mortgaged, deeded in trust or encumbered any interest in the Shareholder Real Estate.

 

(c)                                   Schedule 4.9(c)  sets forth as of June 30, 2005, a complete and accurate list of all furniture, equipment, fixed assets, leasehold improvements, manufacturing equipment, automobiles and all other tangible personal property (including its net book value) owned by, in the possession of, or used by the Seller in connection with the Business. Except as set forth in Schedule 4.9(c) , such personal property is not held under any lease, security agreement, conditional sales contract, or other title retention or

 

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security arrangement or subject to any Liens or encumbrances, and is not located other than in the possession of the Seller.

 

(d)                                  All receivables of the Seller reflected on the balance sheet in the Second Quarter Financial Statements or created after the date of the balance sheet in the Second Quarter Financial Statements arose from valid transactions in the ordinary course of business consistent with past practice.