ASSET PURCHASE AGREEMENT

Exhibit 10.14

 

ASSET PURCHASE AGREEMENT

 

THIS ASSET PURCHASE AGREEMENT (this “Agreement”) is made and entered into as of the 2nd day of May, 2005, by and among MSG A CQUISITION , LLC , a Delaware limited liability company (the “Buyer”) and M IKOHN G AMING C ORPORATION D / B / A P ROGRESSIVE G AMING I NTERNATIONAL C ORPORATION , a Nevada corporation (the “Seller”).

 

W I T N E S S E T H:

 

WHEREAS , upon and subject to the terms and conditions contained herein, the Seller desires to sell to the Buyer, and the Buyer desires to purchase from the Seller, substantially all of the assets of the Seller used in the development, design, manufacture, marketing, sale and installation of signs, displays and slot glass for the gaming industry (the “Business”)(the Business does not include any electronics that the Seller currently sells with some of its signs and displays (the “Electronics Business”) which is a business being retained by the Seller); and

 

WHEREAS , in connection with and as contemplated by this Agreement, the parties have also entered into, executed and delivered the other certificates, agreements, documents and instruments herein contemplated (collectively, with this Agreement, the “Transaction Documents”).

 

NOW, THEREFORE , in consideration of the mutual representations, warranties, covenants and agreements herein contained, and upon and subject to the terms and the conditions hereinafter set forth, the parties do hereby agree as follows:

 

ARTICLE I

 

PURCHASE AND SALE OF ASSETS; ASSUMPTION OF LIABILITIES

 

1.01 Transfer of the Assets . Upon the terms and subject to the conditions of this Agreement, at the Closing (as defined herein), the Seller shall sell, convey, assign, and transfer to the Buyer, and the Buyer shall purchase, accept and take from the Seller, the following assets, properties and rights (such assets, properties and rights, but specifically not including the Excluded Assets (as defined herein), being referred to as the “Assets”):

 

(a) [Reserved];

 

(b) all machinery, equipment, tools, furniture, office equipment, computer hardware, supplies, materials, vehicles and other items of tangible personal property of every kind owned by the Seller which are (i) located at the facility at 328 Old Highway 91, Gateway Industrial Park, Hurricane, Utah 84737 (the “Hurricane Facility”), (ii) located in those sections of the graphics building at 6850 Paradise Road, Las Vegas, Nevada 89119 (the “Graphics Facility”) that are depicted on the building plan set forth on and a list of which is set forth in Schedule 1.01(a)(ii) , (iii) located in those sections of the building at 920 Pilot Road, Las Vegas, Nevada 89118 that are depicted on the building plan set forth on and a list of which is set forth in Schedule 1.01(a)(iii) , and (iv) any other assets set forth on Schedule 3.10(a) , in each case

together with any express or implied warranty by the manufacturers or sellers or lessors of any item or component part thereof and all maintenance records and other documents relating thereto;

 

(c) all Inventories (as defined in Section 3.10(e) below);

 

(d) all Accounts Receivable (as defined in Section 3.26 below), notes, bonds and other evidences of indebtedness of and rights to receive payments from any person;

 

(e) all of the Seller’s rights and benefits in and to all Assumed Contracts, and all outstanding offers or solicitations made by or to the Seller to enter into any such Assumed Contracts;

 

(f) subject to Section 5.02 as it relates to the Deferred IP Assets (as defined in Schedule 3.12(b) ), all of the intangible rights and property of the Seller set forth on Schedule 3.12(b) , including any goodwill or going concern value related thereto, in each case to the extent the transfer of such items to the Buyer is not prohibited by applicable laws or by contract;

 

(g) originals or copies of all of the Seller’s business records (other than personnel records) which arise from or which are used in connection with the Business, including customer lists, lists of suppliers, accounting records (including ancillary records, paid invoices and work papers related thereto), correspondence, computer and billing tapes, files, research data, advertising data and other records, in each case to the extent the transfer of such items to the Buyer is not prohibited by applicable laws;

 

(h) all claims of the Seller against third parties relating to the Assets, whether choate or inchoate, known or unknown, contingent or noncontingent; and

 

(i) all rights of the Seller relating to deposits and prepaid expenses, claims for refunds and rights to offset relating to the Assets that do not constitute Excluded Assets.

 

1.02 Excluded Assets . Notwithstanding anything herein to the contrary, the Assets shall not include the following assets, properties and/or rights (the “Excluded Assets”), which shall remain the property of the Seller after the Closing:

 

(a) all cash, cash equivalents, marketable securities and other short-term investments, and intercompany accounts receivable of the Seller or the Business;

 

(b) all personnel records and other records that the Seller is required by law to retain in its possession;

 

(c) all governmental permits and other governmental authorizations that the Seller is required by law to retain in its possession or prohibited by law from transferring to the Buyer;

 

(d) all minute books, stock books, tax returns and similar corporate records of the Seller;

 

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(e) all claims for the refund of Taxes (as defined herein) and other governmental charges of whatever nature;

 

(f) all rights in connection with and assets of the Employee Benefit Plans (as defined herein);

 

(g) all rights under insurance policies, including without limitation, all claims, refunds and credits due or to become due under such policies;

 

(h) all claims and counterclaims with respect to rights of offset against liabilities of the Business or the Seller not assumed by the Buyer; and

 

(i) all rights of the Seller under this Agreement and the Transaction Documents;

 

(j) all rights of the Seller in its corporate name “Mikohn Gaming Corporation”;

 

(k) without in any manner limiting the foregoing, the properties and assets listed on Schedule 1.02 .

 

1.03 Liabilities . It is understood and agreed that the Buyer shall not assume or become liable for the payment of any debts, liabilities, losses, accounts payable, bank indebtedness, mortgages or other obligations of the Seller, whether the same are known or unknown, now existing or hereafter arising, of whatever nature or character, whether absolute or contingent, liquidated or disputed (the “Excluded Liabilities”), provided that, at the Closing, the Buyer shall, pursuant to a bill of sale and assignment and assumption agreement substantially in the form attached hereto as Exhibit 1.03 (the “Bill of Sale and Assignment and Assumption Agreement”), assume and agree to pay, perform and discharge when due the following liabilities (the “Assumed Liabilities”):

 

(a) subject to Section 6.01, all obligations and liabilities of the Seller or its Affiliates under the contracts set forth on Schedule 1.03(a) (the “Assumed Contracts”) to be performed under the Assumed Contracts after the Closing (regardless of whether a customer prepaid for any service to be performed after the Closing), but except in all cases claims, obligations and liabilities, actual or contingent, arising out of the Seller’s default under, or breach of, any such Assumed Contracts prior to the Closing Date;

 

(b) all accounts payable of the Business as reflected on the Interim Balance Sheet (as defined herein) as of the Interim Balance Sheet Date and arising thereafter in the Ordinary Course of Business (as defined herein) other than intercompany accounts payable, accrued interest, management fees, debt for borrowed money, any obligations under capital leases and Taxes;

 

(c) subject to Sections 5.03 and 6.06, and except as otherwise specifically provided in this Agreement, all liabilities for Taxes (as defined herein) arising out of or relating to the use, ownership, sale or lease of any of the Assets after the Closing;

 

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(d) except as otherwise specifically provided in this Agreement, all other liabilities to the extent arising out of or relating to the use of the Assets or the conduct of the Business after the Closing, but only to the extent that they arise after the Closing; and

 

(e) the obligations and liabilities assumed by the Buyer as provided in Section 6.03.

 

The Buyer shall control all claims, proceedings and other matters relating to the Assumed Liabilities and Seller shall, and shall cause its Affiliates (as defined below) to, refer all such matters to the Buyer for handling. “Affiliate” means, with respect to any person, any other person that, directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such person, and the term “control” (including the terms “controlled by” and “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such person, whether through ownership of voting securities, by contract or otherwise.

 

1.04 Post-Closing Transfers. Notwithstanding any provision herein to the contrary, the Buyer acknowledges and agrees that the Seller may not assign the operating leases and the vehicle leases identified on Schedule 1.04 (the “Identified Leases”) until it obtains the consent of the applicable lessor and that the Seller is unable to obtain such consents prior to the Closing. Following the Closing, the Seller authorizes the Buyer to use the copiers and vehicles that are the subject to the Identified Leases as if they had been transferred to the Buyer as of the Closing. The Seller agrees to use commercially reasonably efforts to work with its insurance carriers to obtain insurance coverage for the Buyer’s employees who drive the leased vehicles subject to the Identified Leases following the Closing for the period between the date of the Closing and the transfer of all or the applicable portion of the related Identified Leases. The Buyer agrees to reimburse the Seller for the lease payments and any other costs under the Identified Leases to the extent related to leased vehicles and copiers included among the Assets as such payments become due or make the payments directly as if the Identified Leases were Assumed Contracts as of the Closing. Once the consent to transfer all or the applicable portion of an Identified Lease is obtained, the Seller and the Buyer shall execute and deliver to each other a bill of sale and assignment and assumption agreement for that particular Identified Lease and such Identified Lease shall become an Assumed Contract.

 

1.05 Relocation Payment . The Parties acknowledge and agree that the Buyer may relocate the Business’ existing manufacturing activities from the Graphics Building to some other facility following the Closing Date. Pursuant to the Transition Services Agreement, the Seller shall sublet the Graphics Building to the Buyer following the Closing, pending the Buyer’s determination regarding the potential relocation of manufacturing activities. Within forty-five (45) days following the Closing Date, the Buyer shall give notice to the Seller of the Buyer’s determination with respect to the potential relocation. The Parties further agree as follows:

 

(a) Hurricane Relocation . If the Buyer provides notice of its intention to move the Business’s existing manufacturing activities to the Hurricane Facility, the Seller shall promptly assign and the Buyer shall assume the lease for the Graphics Facility, and such lease would be deemed an Assumed Contract for all purposes under this Agreement. Thereafter, upon

 

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the Buyer moving manufacturing activities from the Graphics Building to the Hurricane Facility within two-hundred twenty-five (225) days following the Closing, the Seller shall reimburse the Buyer for the Buyer’s actual cost (exclusive of internal personnel expense) of purchasing and installing any silver reclamation, waste water equipment and related equipment deemed necessary by the Buyer in order to facilitate the conduct of manufacturing activities at the Hurricane Facility in compliance with applicable laws, such reimbursement not to exceed $250,000.

 

(b) Other Relocation . If the Buyer determines, in its sole discretion, that relocating the Business’s existing manufacturing activities to the Hurricane Facility is cost prohibitive, then the Buyer may provide notice of its intention to move such manufacturing activities from the Graphics Building to any location other than the Hurricane Facility. In such case, the Buyer shall be entitled to continue to sublet the Graphics Building until the date that is two-hundred twenty-five (225) days after the Closing Date pursuant to the terms of the Transition Services Agreement. Under such circumstances, the lease for the Graphics Facility would not be assigned to or assumed by the Buyer and all liabilities and obligations with respect thereto would be deemed Excluded Liabilities for all purposes under the Agreement.

 

ARTICLE II

 

PURCHASE PRICE; CLOSING

 

2.01 Purchase Price . Subject to the adjustment provided in Section 2.02, the aggregate purchase price for the Assets (the “Purchase Price”) is Twelve Million Three Hundred Thousand Dollars ($12,300,000.00) of which $12,229,293 is payable in cash (the “Cash Portion”) and $70,707 is payable through the issuance of a fully paid membership interest in the Buyer representing 1% of the fully-vested and outstanding percentage ownership of the Buyer as of the Closing Date. At the Closing, the Cash Portion, minus any Estimated Working Capital Deficit or plus any Estimated Working Capital Surplus, shall be delivered by the Buyer to the Seller by wire transfer of immediately available funds, subject to subsequent adjustment as provided in Section 2.02.

 

2.02 Net Working Capital Adjustment .

 

(a) Definition of “Net Working Capital” . For purposes of this Section 2.02, “Net Working Capital” means (i) the aggregate amount of the net accounts receivable, net inventory and prepaid and other current assets of the Business plus net accounts receivable (the “Current Assets”) less (ii) accounts payable and accrued expenses and customer deposits and other current liabilities of the Business (except for Excluded Liabilities) (the “Current Liabilities”), both determined as of the close of business on the Closing Date, in each case as determined in accordance with U.S. Generally Accepted Accounting Principles, consistently applied (“GAAP”) and in a manner consistent with the Year-End Financial Statements (as hereinafter defined).

 

(b) Estimated Closing Statement . At least five (5) business days prior to the Closing Date, the Seller shall prepare and deliver to the Buyer an estimated closing statement of the Business as of the Closing Date (the “Estimated Closing Statement”), which Estimated

 

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Closing Statement shall set forth the Seller’s good faith estimate of the Current Assets, the Current Liabilities and the Net Working Capital. The Estimated Closing Statement shall be prepared in accordance with GAAP and in a manner consistent with the Year-End Financial Statements.

 

(c) Closing Date Adjustment . The parties hereto acknowledge that the portion of the Purchase Price being paid to the Seller pursuant to Section 2.01 is based on the assumption that the Net Working Capital of the Business shall be equal to Two Million Six Hundred Thousand Dollars ($2,600,000.00) (the “Assumed Net Working Capital”). The parties hereto agree that (i) if the Net Working Capital as reflected on the Estimated Closing Statement (the “Estimated Net Working Capital”) is less than the Assumed Net Working Capital, then the difference between the Assumed Net Working Capital and the Estimated Net Working Capital shall constitute the “Estimated Working Capital Deficit,” and (ii) if the Estimated Net Working Capital is greater than the Assumed Net Working Capital, then the difference between the Estimated Net Working Capital and the Assumed Net Working Capital shall constitute the “Estimated Working Capital Surplus.” At the Closing, the amount to be paid pursuant to Section 2.01 shall be modified as set forth therein based on the amount of any Estimated Working Capital Surplus or Estimated Working Capital Deficit, as the case may be.

 

(d) Buyer’s Proposed Closing Statement . Within 60 days after the Closing Date, the Buyer shall prepare and deliver to the Seller a closing statement of the Business as of the Closing Date (the “Proposed Closing Statement”), which Proposed Closing Statement shall set forth the Buyer’s proposed calculation of the Current Assets, the Current Liabilities, and the Net Working Capital. The Proposed Closing Statement shall be prepared in accordance with GAAP and in a manner consistent with the Year-End Financial Statements, and shall set forth each of the components of the Current Assets and the Current Liabilities as determined by the Buyer.

 

(e) Examination of Proposed Closing Statement . The Seller shall review the Proposed Closing Statement to confirm the accuracy of the Proposed Closing Statement and of the Buyer’s calculation of the Net Working Capital. Unless the Seller notifies the Buyer within thirty (30) days after the Seller’s receipt of the Proposed Closing Statement that it objects to the computation of Net Working Capital set forth therein, the Proposed Closing Statement shall become the Final Closing Statement for purposes hereof. Subject to appropriate provisions regarding confidentiality, the Seller shall have access to the books and records of the Buyer during regular business hours for the sole purpose of verifying the computation of Net Working Capital. If the Seller notifies the Buyer in writing within thirty (30) days after receipt of the Proposed Closing Statement that it objects to the computation of Net Working Capital set forth therein, the amount of Net Working Capital shall be determined by negotiation between the Seller and the Buyer. If the Seller and the Buyer are unable to reach agreement within thirty (30) business days after such notification, the determination of the amount of Net Working Capital shall be submitted to a mutually agreeable third-party firm of independent certified public accountants of national reputation (the “Special Accountant”) for determination in accordance with the definitions of the components of Net Working Capital included in this Agreement, and such determination shall be binding and conclusive on the parties. The decision of the Special Accountant shall be provided in writing and, if possible, be made within thirty (30) days after the engagement of the Special Accountant and shall be final and binding on the parties. The

 

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Proposed Closing Statement shall be revised, if necessary, to reflect the final determination of the Net Working Capital (the final form of the Proposed Closing Statement, including any revisions which are made thereto pursuant to this Section 2.02(e), is referred to herein as the “Final Closing Statement”).

 

(f) Final Adjustment . Upon final determination of the Net Working Capital in accordance with this Section 2.02, a payment adjustment shall be made in accordance with this Section 2.02. If the Net Working Capital as reflected on the Final Closing Statement is less than the Estimated Net Working Capital (the amount of such shortfall, if any, is hereinafter referred to as the “Final Working Capital Deficit”), the Seller shall pay to the Buyer, on a dollar-for-dollar basis, an amount equal to the Final Working Capital Deficit. If the Net Working Capital as reflected on the Final Closing Statement is greater than the Estimated Net Working Capital (the amount of such excess is hereinafter referred to as the “Final Working Capital Surplus”), the Buyer shall pay to the Seller, on a dollar-for-dollar basis, an amount equal to the Final Working Capital Surplus.

 

(g) Expenses of Special Accountant . In the event that the parties submit any unresolved objections to the Special Accountant for resolution as provided in Section 2.02(e) above, the Seller, on the one hand, and the Buyer, on the other hand, will bear responsibility for the fees and expenses of the Special Accountant as follows:

 

(i) If the Special Accountant resolves the remaining objections, based on aggregate dollar values, in favor of the Buyer, the Seller will be responsible for all of the fees and expenses of the Special Accountant; and

 

(ii) If the Special Accountant resolves the remaining objections, based on aggregate dollar values, in favor of the Seller, the Buyer will be responsible for all of the fees and expenses of the Special Accountant.

 

2.03 Allocation . The Purchase Price shall be allocated as set forth on Schedule 2.03 . The Buyer and the Seller agree to file their federal and state income tax returns (and Form 8594, if applicable) on the basis of the allocation set forth on Schedule 2.03 and that neither shall thereafter take a tax return position inconsistent with such allocation unless such inconsistent position shall arise out of or through an audit or other inquiry or examination by the Internal Revenue Service or other taxing authority.

 

2.04 Manner of Effecting Sale . The sale, conveyance, transfer, assignment and delivery of the Assets by the Seller to the Buyer shall be effected by the Bill of Sale and Assignment and Assumption Agreement and such deeds, endorsements, assignments, transfers and other instruments of transfer and conveyance in such form, including, without limitation, warranties of title, as the Buyer or the Buyer’s attorney shall reasonably request.

 

2.05 Closing and Closing Date . Subject to the satisfaction or waiver of the conditions set forth herein, the consummation of the purchase and sale of the Assets (the “Closing”) shall take place at 10:00 a.m. on the date hereof in the offices of the Seller, or on such other date and at such other time and place as the parties shall agree in writing (the “Closing Date”). The Buyer shall commence to own, operate and control the Business as of the Closing.

 

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2.06 Method of Payment . All monetary payments from one party to another under this Agreement, including, without limitation, the Purchase Price, shall be made in cash or by wire transfer of immediately available federal funds to an account designated in writing by the party receiving such payment. All such payments shall be made in U.S. currency.

 

ARTICLE III

 

REPRESENTATIONS AND WARRANTIES OF THE SELLER

 

The Seller hereby represents and warrants to the Buyer as follows:

 

3.01 Organization and Authorization .

 

(a) The Seller is a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation, has all requisite power and authority to carry on and conduct its business as it is now being conducted and to own or lease its properties and assets, and is duly qualified and in good standing in the states in which failure to be so qualified would have a Material Adverse Effect. “Material Adverse Effect” shall mean any effect that is materially adverse to the assets, liabilities, financial condition or existing business of the Company, excluding effects to the extent due to: (i) general business or economic conditions; (ii) conditions generally affecting any industry or industry sector in which the Business operates or competes; (iii) the announcement, execution or delivery of this Agreement or the transactions contemplated hereby; or (iv) any change in accounting requirements or any change in applicable laws or the interpretation thereof.

 

(b) The Seller has the right, power and capacity to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby. The execution, delivery and performance of this Agreement by the Seller, and the consummation of the transactions contemplated hereby, have been duly authorized by all necessary corporate action on the part of the Seller. This Agreement has been duly and validly executed and delivered by the Seller and, assuming the due authorization, execution and delivery by the parties other than the Seller, constitutes the Seller’s legal, valid and binding obligation, enforceable in accordance with its terms, except (i) as the same may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws now or hereafter in effect relating to creditors’ rights generally and (ii) that the remedy of specific performance or injunctive relief and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefore may be brought.

 

3.02 No Conflict . The execution and delivery of this Agreement by the Seller, the consummation of the transactions contemplated herein by the Seller, and the performance of the covenants and agreements of the Seller will not, with or without the giving of notice or the lapse of time, or both, (a) violate or conflict with any of the provisions of any charter document or bylaw of the Seller; or (b) violate, conflict with or result in a breach or default under or cause termination of any term or condition of any mortgage, indenture, contract, license, permit,

 

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instrument, trust document, will, or other agreement, document or instrument to which the Seller is a party and by which the Assets or the Business may be bound; or (c) violate any provision of law, statute, regulation, court order or ruling of any governmental authority, to which the Seller is a party and by which the Assets or the Business may be bound; or (d) result in the creation or imposition of any lien, claim, charge, restriction, security interest or encumbrance of any kind whatsoever upon any Assets.

 

3.03 Required Consents and Approvals . Except as set forth on Schedule 3.03 , no consent or approval is required by virtue of the execution hereof by the Seller or the consummation of any of the transactions contemplated herein by the Seller to avoid the violation or breach of, or the default under, or the creation of a lien on assets of the Seller pursuant to the terms of, any regulation, order, decree or award of any court or governmental agency or any lease, agreement, contract, mortgage, note, license, or any other instrument to which the Seller is a party and to which the Assets or the Business is subject.

 

3.04 No Violation of Law . Except as set forth on Schedule 3.04 , the Seller (a) is not and since January 1, 2002 has not been in violation in any material respect of any applicable local, state or federal law, ordinance, regulation, order, injunction or decree, or any other requirement of any governmental body, agency or authority or court binding on it in connection with the operation of the Business, or relating to its Assets or the Business or the advertising, sales or pricing practices of the Business (including, without limitation, any antitrust laws and regulations), and (b) the Seller has not in any event been notified of the existence of any of the foregoing.

 

3.05 Financial Statements . Schedule 3.05(a) contains the unaudited pro forma balance sheet of the Business as of December 31, 2004, and the related unaudited pro forma statement of income for the year then ended (collectively, the “Year-End Financial Statements”), and the unaudited pro forma balance sheet of the Business as of March 31, 2005, and the related unaudited pro forma statement of income for the three-month period then ended (the “Interim Financial Statements”; the Year-End Financial Statements and the Interim Financial Statements are referred to collectively herein as the “Financial Statements”). Schedule 3.05(b) contains certain additional income statement data related to the Business (the “Additional Income Statement Data”). The Year-End Financial Statements present fairly, in all material respects, the financial position of the Business as of the date thereof, and the related results of its operations for the year then ended. The Interim Financial Statements present fairly, in all material respects, the financial position of the Business as of the date thereof, and the related results of its operations for the quarter ended March 31, 2005. The line designated as “COS- Total Materials” in the Additional Income Statement Data materially accurately states the aggregate raw material costs incurred by the Business for the applicable periods stated therein. The line designated “COS Labor and Overhead” in the Additional Income Statement Data materially accurately states the direct labor costs, indirect labor costs (exclusive of labor and overhead costs related to sales and marketing, art, executive and administrative, finance and legal (collectively, “SG&A”)) and overhead incurred by the Business during the applicable periods stated therein. The line designated “Total SG&A Dept. Exp.” in the Additional Income Statement Data materially accurately states the labor and overhead costs incurred by the Business with respect to SG&A (other than, with respect to the Hurricane Facility, indirect labor costs for IS, HR and facilities, which are included in the line designated COS-Labor and

 

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Overhead) during the applicable periods stated therein. The total revenue reflected on the Year-End Financial Statements and the Interim Financial Statements materially accurately states the revenue of the Business during the applicable periods. The EBITDA of the Business for the year ending December 31, 2004, was not less than $2,596,000 and the EBITDA of the Business for the quarter ending March 31, 2005, was not less than $590,000. If at the commencement of the calendar year 2004, the Net Working Capital (determined as of such date, as opposed to the Closing Date) of the Business had been an amount equal to the Assumed Net Working Capital, then the Business would have been able to operate on a stand-alone basis in calendar year 2004, assuming it performed in the manner in which it performed in 2004, without requiring any additional funding for its operations. The balance sheets included in the Financial Statements do not include any material assets or liabilities not intended to constitute a part of the Business or the Assets after giving effect to the transactions contemplated hereby, other than Taxes related thereto. The statements of operations included in the Financial Statements do not include any revenue resulting from the operations of any entity or business not intended to constitute a part of the Business after giving effect to the transactions contemplated by this Agreement. EBITDA means the earnings of the Business before interest, taxes, depreciation and amortization of the Business.

 

3.06 [Reserved]

 

3.07 No Undisclosed Liabilities . The Seller has no liability or obligation whatsoever relating to the Business or the Assets, whether accrued, absolute, contingent or otherwise, other than (a) those reflected in, reserved against or otherwise described in the Financial Statements, (b) those arising in the Ordinary Course of Business, (c) Assumed Contracts, (d) Excluded Liabilities, (e) those that, in the aggregate, are immaterial to the Business and the Assets, and (f) those reflected on Schedule 3.07 .

 

3.08 Affiliate Transactions; Guaranties .

 

(a) Schedule 3.08(a) lists all agreements, arrangements and other commitments or transactions to or by which the Seller, on the one hand, and any of its Affiliates, on the other hand, are or have been a party or otherwise bound or affected and that (i) were entered into since January 1, 2004, (ii) are currently pending or in effect or (iii) involve continuing liabilities or obligations that, individually or in the aggregate, have been or will be material to the Business (each, an “Affiliate Transaction”). Each such Affiliate Transaction was on terms and conditions as favorable to the Seller as would have been obtainable by it at the time in a comparable arm’s-length transaction with a person other than the Seller or any of its Affiliates. No officer or director and, to the Seller’s knowledge, no employee of the Seller, or any family member, relative or Affiliate of any such officer, director or employee, (i) owns, directly or indirectly, any interest in (x) any asset or other property used in or held for use in the Business or (y) any person that is a supplier, customer or competitor of the Business, (ii) serves as an officer, director or employee of any person that is a supplier, customer or competitor of the Business or (iii) is a debtor or creditor of the Business. For purposes of this Agreement, and without limitation, Affiliates of the Seller shall be deemed to include (A) any person directly or indirectly beneficially owning or controlling 5% or more of the outstanding voting securities of the Seller or any of its Affiliates, (B) any person 5% or more of whose outstanding voting securities are directly or indirectly beneficially owned or controlled by the Seller or any of its

 

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Affiliates or (C) any current or former director or officer of the Seller or any of its Affiliates or any “associates” or members of the “immediate family” (as such terms are respectively defined in Rule 12b-2 and Rule 16a-1 of the U.S. Securities Exchange Act of 1934, as amended) of any such director or officer.

 

(b) Except as set forth on Schedule 3.08(b) : (i) none of the obligations or liabilities of the Business or of the Seller incurred in connection with the Business is guaranteed by or subject to a similar contingent obligation of any other person; (ii) the Seller has not guaranteed or become subject to a similar contingent obligation in respect of the obligations or liabilities of any other person in connection with the Business; and (iii) there are no outstanding letters of credit, surety bonds or similar instruments of the Seller or any of its Affiliates in connection with the Business or the Assets.

 

3.09 Real Property .

 

(a) Schedule 3.09(a) sets forth a complete and accurate list and description of all the real property that the Seller owns, leases, has agreed (or has an option) to purchase, sell or lease, or may be obligated to purchase, sell or lease that relates to or has been utilized in the Business (the “Real Property”). With respect to each parcel of Real Property required to be listed and described on Schedule 3.09(a) , the Seller has made available to the Buyer true, correct and complete copies of each mortgage or other encumbrance thereon reflected in a written instrument, each instrument (if any) evidencing a grant by or to the Seller of an option to purchase or lease such parcel, each lease and leasehold mortgage (if any) with respect to such parcel, and any title policies or commitments and surveys with respect to such parcel.

 

(b) Except for Permitted Liens and other matters set forth on Schedule 3.09(b) , no Real Property is subject to (i) any governmental decree or order (or threatened or proposed order known to the Seller) to be sold or taken by public authority; or (ii) any rights of way, building use restrictions, exceptions, variances, reservations or limitations of any nature whatsoever, not of record.

 

3.10 Personal Property .

 

(a) Schedule 3.10(a) sets forth a complete and accurate list of all the tangible personal property that the Seller owns or leases, has agreed (or has an option) to purchase, sell or lease, or may be obligated to purchase, sell or lease, which is utilized primarily in the Business.

 

(b) The Seller (i) has good and valid title to all the owned tangible personal properties listed on Schedule 3.10(a) , and all the tangible personal properties and assets reflected, but not shown as leased or encumbered, in the Financial Statements (except for inventory and assets sold in the Ordinary Course of Business and supplies consumed in the Ordinary Course of Business); and (ii) except for Permitted Liens, owns such personal property free and clear of all title defects or objections, liens, restrictions, claims, charges, security interests, easements, or other encumbrances of any nature whatsoever, including any mortgages, leases, chattel mortgages, conditional sales contracts, collateral, security arrangements and other title or interest retention arrangements. Except as disclosed on Schedule 3.10(b) all of the tangible Assets are in the possession of the Seller.

 

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(c) Except as set forth on Schedule 3.10(c) , the plants, structures and equipment owned or leased by the Seller relating to or utilized in the Business (other than any Excluded Assets) have no material defects, are in reasonably good and safe operating condition and repair, reasonable wear and tear excepted, and are adequate for the uses to which they are being put. Except as set forth on Schedule 3.10(c) , to the Seller’s knowledge, there are no facts or conditions affecting any material tangible Assets which would reasonably be expected, individually or in the aggregate, to interfere with the current use, occupancy or operation of such Assets.

 

(d) Except as set forth on Schedule 3.10(d) , the Assets include all assets that have been used in the Business since January 1, 2004, and all assets that are reasonably required to operate the Business in the manner in which the Business has been conducted by the Seller since January 1, 2004, other than assets disposed of, consumed or sold in the Ordinary Course of Business, the Excluded Assets, and the assets and rights to be made available to the Buyer pursuant to the Manufacturing and Supply Agreement, the License Agreement and the Transition Services Agreement (each as hereinafter defined). The Seller has conducted the Business only through the Seller and not through any other divisions or direct or indirect subsidiaries or any other entity, and none of the Assets are owned by any Subsidiary of the Seller.

 

(e) All of the inventories of the Seller included in the Interim Financial Statements or subsequently acquired by the Seller in connection with the operation of the Business (the “Inventories”) are merchantable and of a quality and quantity usable and saleable in the Ordinary Course of Business or pursuant to a binding contract, and the quantities of each type of inventory (whether raw materials, work-in-process, or finished goods or products) are not excessive, but are reasonable, adequate and appropriate in light of normal operating requirements of the Business subject to the reserves for obsolete inventory set forth in the Financial Statements or accrued in the Ordinary Course of Business since the date of the Financial Statements (to the extent set forth on the Final Closing Statement). All of the Inventories of the Seller included in the Interim Financial Statements are valued for the purposes thereof at the lower of cost or market.

 

(f) Schedule 3.10(f) contains a complete and accurate list of all leases (including any capital leases) and lease-purchase arrangements (other than Real Property leases) pursuant to which the Seller leases tangible personal property from others that relates to or is utilized primarily in the Business and which (i) require the Seller to pay, for rent and any obligatory improvements, more than $10,000 in any single year or $10,000 during the entire term of such lease or lease-purchase arrangement (including any renewal term that the Seller may not avoid by refusing to renew in its sole discretion); or (ii) provide for a purchase option for a price of more than $10,000. Schedule 3.10(f) specifies which of such leases, if any, are capital leases. All leases that are required to be capitalized by GAAP have been so accounted for in the Financial Statements. The Seller has made available to the Buyer a true, correct and complete copy of each of the items required to be listed on Schedule 3.10(f) .

 

3.11 Indebtedness . Schedule 3.11 sets forth a complete and accurate list of all instruments or other documents relating to any direct or indirect indebtedness for borrowed money of the Seller relating to the Assets or the Business, as well as indebtedness by way of lease-purchase arrangements, guarantees, undertakings on which others rely in extending credit

 

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and all conditional sales contracts, chattel mortgages and other security arrangements with respect to personal property used or owned by the Seller in the Business (other than those set forth on Schedule 3.10(f) ) other than any Excluded Liabilities. The Seller has made available to the Buyer a true, correct and complete copy of each of the items required to be listed on Schedule 3.11 .

 

3.12 Intellectual Property .

 

(a) Intellectual Property . For purposes of this Agreement, the term “Intellectual Property” shall mean all worldwide patents, patent rights, patent applications, registered trademarks and service marks, trademark rights (including but not limited to product names, logos, slogans and tag lines), trademark applications, service mark rights, service mark applications, trade names, registered copyrights, copyright rights, moral rights, domain names and all intellectual, industrial software or proprietary rights, rights of publicity and trade secrets, technology and know-how.

 

(b) Utilization of Intellectual Property . Other than the registered trademark “Mikohn,” used as part of the name Mikohn Signs & Graphics, artwork utilized in the operation of the Business, custom software developed for the CAD system utilized in the operation of the Business, and commercially available software and hardware and other Intellectual Property listed on Schedule 3.12(b) (collectively, the “Business IP”), no Intellectual Property is required to operate the Business in the manner in which the Business has been conducted by the Seller since January 1, 2004, and no Intellectual Property has actually been utilized by the Seller in the conduct of the Business during such period. Schedule 3.12(b) identifies which of the Business IP is owned by the Seller and which of the Business IP is licensed from third parties and also separately identifies the Deferred IP Assets. The Business also obtains sublicenses from its customers relating to the use of trademarks on signs and displays made for its customers. The Buyer will not be required to obtain any additional licenses to any Intellectual Property in order to assemble the Finished Electronics for the Seller in accordance with the Manufacturing and Supply Agreement (as defined in Section 7.01(d)).

 

(c) Ownership; Non-Infringement . Subject to Permitted Liens, the Seller owns all right, title and interest in and to the Business IP other than Business IP licensed from third parties. There are no pending proceedings or adverse claims made or, to the Seller’s knowledge, threatened against the Seller with respect to the Business IP. No litigation has been commenced or, to the Seller’s knowledge, threatened in writing within the past five (5) years with respect to the Business IP or the Seller’s rights therein. To the Seller’s knowledge, the operation of the Business has not infringed upon any Intellectual Property of any third party (“Third-Party Intellectual Property”). To the Seller’s knowledge, such Third-Party Intellectual Property or its use by others or any other conduct of a third party does not conflict with or infringe upon any Business IP or its use by the Seller.

 

3.13 Litigation . Schedule 3.13 (a) sets forth all litigation, claims, suits, actions, investigations, indictments or informations, proceedings or arbitrations, grievances or other procedures (including grand jury investigations, actions or proceedings, and product liability and workers’ compensation suits, actions or proceedings) pending, or to the knowledge of the Seller, threatened, before any court, commission, arbitration tribunal, or judicial, governmental

 

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or administrative department, body, agency, administrator or official, grand jury, or any other forum for the resolution of grievances, relating to or involving any of the Assets or the Business, and (b) indicates which of such matters are being defended by an insurance carrier, and which of the matters being so defended are being defended under a reservation of rights. Further, except as set forth on Schedule 3.13 , there are no judgments, orders, writs, injunctions, decrees, indictments or informations, grand jury subpoenas or civil investigative demands, plea agreements, stipulations or awards (whether rendered by a court, commission, arbitration tribunal, or judicial, governmental or administrative department, body, agency, administrator or official, grand jury or any other forum for the resolution of grievances) against or relating to or involving any of the Assets or the Business. The Seller has made available to the Buyer true, correct and complete copies of pleadings, briefs and other documents filed in each pending litigation, claim, suit, action, investigation, indictment or information, proceeding, arbitration, grievance or other procedure required to be listed on Schedule 3.13 , and the judgments, orders, writs, injunctions, decrees, indictments and informations, grand jury subpoenas and civil investigative demands, plea agreements, stipulations and awards required to be listed on said Schedule.

 

3.14 Employees .

 

(a) Schedule 3.14(a) sets forth the names, job title and current compensation (broken down by category, e.g., salary, bonus, commission) of all employees and independent contractors of the Seller working in the Business, together with the date and amount of the last increase in compensation for each such person. To the knowledge of the Seller, no such employee or independent contractor intends to terminate his or her employment or independent contractor relationship with the Business as a result of the transactions contemplated herein or otherwise.

 

(b) The Seller has conducted a thorough review of its employee records and has determined, based upon information provided to the Seller, that each foreign national employee of the Seller working in the Business is authorized to be present and employed in the United States. To the Seller’s knowledge, the information relied upon to make the foregoing determination is accurate. Additionally, except as disclosed on Schedule 3.14(b) , the Seller is in compliance with all applicable laws, regulations, judgments and other requirements relating to the regulation of foreign nationals in the United States including, without limitation, those items relating to the employment and compensation of foreign nationals in the United States. Moreover, there are no unresolved past, pending or, to the Seller’s knowledge, threatened administrative, regulatory or judicial actions, proceedings, investigations, obligations, liabilities, losses, decrees, judgments, penalties, fines, fees, demands, demand letters, orders, directives, claims, or notices of noncompliance or violation relating in any way to the Seller or its operations in connection with the Seller’s employment of foreign nationals. As used herein, the term “foreign national” means a person who is not a citizen of the United States of America.

 

3.15 Employee Benefits .

 

(a) List and Description of Plans and Arrangements . Schedule 3.15(a)(i) sets forth a complete and accurate list of all agreements, arrangements, commitments, policies or understandings of any kind (whether written or oral) which satisfy all three of the following

 

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criteria: A) they relate to employee benefits; (B) they pertain to the employees listed on Schedule 6.03 ; and (C) they are currently adopted, maintained by, sponsored by, or contributed to by the Seller, any of its predecessors in interest or any employer which, under Section 414 of the Internal Revenue Code (the “Code”), would constitute a single employer with the Seller (a “Seller Affiliate”) (collectively, “Employee Benefit Plans”), including, but not limited to, all such: (1) employee benefit plans as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”); (2) all other deferred compensation, early retirement, incentive, profit-sharing, thrift, stock ownership, stock appreciation rights, bonus, stock option, stock purchase, welfare or vacation, or other nonqualified benefit plans or arrangements; and (3) trusts, group annuity contracts, insurance policies or other funding media for the plans and arrangements described hereinabove. All such compensation and benefits are appropriately reflected in the Financial Statements and books and records of the Seller.

 

(b) Copies of Documents Provided to the Buyer . The Seller has made available to the Buyer true, correct and complete copies of all the Employee Benefit Plans, as well as related documents reasonably requested by the Buyer. Since the date such documents were supplied to Buyer, no plan amendments have been adopted, no changes to the documents have been made, and no such amendments or changes shall be adopted or made prior to the Closing Date.

 

(c) Agreements to Create, Continue or Terminate Plans . Neither the Seller, its predecessors in interest nor any Seller Affiliate has any agreement, arrangement, commitment or understanding, whether legally binding or not, to create any additional Employee Benefit Plan or to continue, modify, change in any material respect, or terminate any existing Employee Benefit Plan.

 

(d) Retiree Welfare Benefits . No Employee Benefit Plan provides group health, dental, vision, life insurance or other welfare benefits to employees following retirement or other separation from service, except to the extent required under Part 6 of Title I of ERISA and Code Section 4980B.

 

(e) Vacation Benefits . Schedule 3.15(e) sets forth a complete and accurate list of the number of vacation and personal days accrued by the employees listed on Schedule 6.03 pursuant to Seller’s policies but remaining unused as of the Closing. Such employees are not allowed to accrue sick days.

 

(f) Service Credit . Schedule 3.15(f) sets forth a complete and accurate list of the service with Seller credited to each employee listed on Schedule 6.03 as of the Closing Date.

 

(g) Parachute Payments . None of the Assumed Liabilities includes an obligation to make a payment that would be a nondeductible expense pursuant to Code Section 162(m) or 280G or result in an excise Tax to the recipient pursuant to Code Section 4999.

 

3.16 Collective Bargaining . Except as set forth on Schedule 3.16 , there are no labor contracts, collective bargaining agreements, letters of understanding or other arrangements with any union or labor organization covering any of the Transferring Employees and none of the Transferring Employees is represented by any union or labor organization. The Seller has made available to the Buyer a true, correct and complete copy