ASSET PURCHASE AGREEMENT

EXHIBIT 10(r)

ASSET PURCHASE AGREEMENT

Dated June 8, 2000

By and Between

TYCO INTERNATIONAL (US) INC.,

LUDLOW BUILDING PRODUCTS, INC.

as Buyer

TYCO PLASTICS SERVICES AG

as IP Buyer

and

K2 INC.,

as Seller

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ASSET PURCHASE AGREEMENT

THIS ASSET PURCHASE AGREEMENT (this “AGREEMENT”) is made and entered into as of this 8th day of June, 2000 by and between Tyco International (US) Inc., a Massachusetts corporation (“TYCO”), Ludlow Building Products, Inc., a Virginia corporation (“BUYER”), Tyco Plastics Services AG, a Swiss corporation (“IP BUYER”), and K2 Inc., a Delaware corporation (“SELLER”). (Except as used in this paragraph and Sections 1, 4.1, 9 and 11.3 of this Agreement, the term “Buyer” is used herein to refer to Tyco, Buyer and IP Buyer collectively.)

RECITALS

1. Seller’s division, Simplex Products (the “DIVISION”), is engaged in the business of manufacturing and selling a variety of industrial and building products, including exterior sheathing and housewrap, recycled chipboard, exterior insulative finishing systems (“EIFS”), industrial flexible packaging materials, paperboard products and container components.

2. Tyco desires to cause Buyer and IP Buyer to acquire, and Seller desires to sell, all of the assets (tangible and intangible), properties and goodwill of Seller used or held for use primarily in the Division, on the terms and conditions hereinafter set forth.

AGREEMENT

NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants and agreements contained herein, the parties hereto agree as follows:

1. AGREEMENT TO SELL AND AGREEMENT TO PURCHASE.

1.1 ASSETS TO BE CONVEYED. On the Closing Date (as hereinafter defined) Seller shall convey, transfer, assign, sell and deliver to Buyer and IP Buyer, and Tyco shall cause Buyer and IP Buyer to acquire, accept and purchase, all of the assets, properties and rights of Seller used or held for use primarily in the Division (hereinafter collectively referred to as the “ACQUISITION ASSETS”) including, but not limited to, the following:

(a) Prepaid items and deposits of the Division;

(b) Accounts receivable, notes and notes receivable arising from the conduct of the Division’s business (the “ACCOUNTS RECEIVABLE”);

(c) Inventories of raw material, work-in-process and finished goods of the Division (collectively, the “INVENTORY”), whether located at the premises of the Division or elsewhere, including, without limitation, inventory of the Division held by third parties on consignment at the locations listed in SCHEDULE 1.1(c) attached hereto;

(d) Office supplies, drums, containers, tote bins and other packaging material, spare parts, safety equipment, maintenance supplies and other similar items of the Division;

 

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(e) Subject to Section 6.9 hereof, real property leases (including, but not limited to, leases relating to the Leased Real Estate (as hereinafter defined)), equipment or other leases, licenses, contracts, agreements, purchases or sales orders or commitments, written or oral (collectively, the “CONTRACTS”), including, without limitation, those set forth on SCHEDULE 1.1.(e);

(f) Motor vehicles and other rolling stock used by the Division, including those which are listed in SCHEDULE 1.1(f) attached hereto;

(g) Machinery, equipment, tooling, dies, tools, furniture, fixtures, cranes and craneways owned or used by the Division on the Closing Date (hereinafter referred to collectively with the motor vehicles and other rolling stock owned or used by Seller as the “FIXED ASSETS”), whether or not fully depreciated on the books and records of Seller, including, without limitation, those assets set forth in SCHEDULE 1.1(g) attached hereto;

(h) Domestic and foreign patents, patent applications, copyrights, copyright applications, trademarks, trademark applications, service marks, service mark applications, trade names (including without limitation the names “THERMO-PLY,” “BREATHEDRY,” “FINESTONE,” “BARRICADE,” “R-WRAP” and all derivatives and variants thereof) and trade name registrations (in any such case, whether registered or to be registered in the United States of America or elsewhere) and processes, inventions, trade secrets, trade names, computer programs, formulae, know how and other intangible personal property (all of the foregoing in this Section 1.1(h) being hereinafter referred to collectively as “INTANGIBLE PERSONAL Property”) used or held for use primarily in the Division, including, without limitation, those items set forth in SCHEDULE 1.1(h) attached hereto;

(i) The real property commonly known as the Adrian, Michigan plant, the Constantine, Michigan plant and the Jacksonville, Florida facility (the “OWNED REAL ESTATE”) and more particularly described on SCHEDULE 1.1(i) attached hereto, including without limitation all improvements and fixtures located thereon and all rights and interests appurtenant thereto (such real property, improvements, fixtures and appurtenant rights and interests being hereinafter referred to collectively with the Leased Real Estate as the “REAL PROPERTY”);

(j) All federal, state, local and foreign licenses, permits and other governmental authorizations relating to the Division, including without limitation those listed in SCHEDULE 3.8.2;

(k) All goodwill of the Division, customer lists, sales brochures, computer software, books, records and accounts, correspondence, production records, employment records and any confidential information relating to or arising out of the Division, it being understood that Seller will retain duplicate copies of such books, records, accounts and other information as it may deem appropriate for its tax and other ongoing record keeping requirements;

(l) All rights of Seller under express or implied warranties from the suppliers of Seller with respect to the Acquisition Assets; and

 

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(m) computer systems, equipment and other assets, properties or rights of Seller used in the Division.

With respect to the Acquisition Assets listed above, IP Buyer will acquire those Acquisition Assets referred to in Section 1.1(h).

1.2 EXCLUDED ASSETS. Notwithstanding Section 1.1 hereof, Seller is not selling, and Buyer is not purchasing, pursuant to this Agreement, any of the following (the “EXCLUDED ASSETS”), all of which shall be retained by Seller:

(a) Cash, cash equivalents and marketable securities;

(b) Rights of Seller under this Agreement and the agreements, instruments and certificates delivered in connection with this Agreement;

(c) Seller’s minute books, tax returns and other corporate documents;

(d) Seller’s duplicate copy of the books, records and accounts of the Division;

(e) All rights to claims, available to or being pursued by Seller for refunds of or credits against income taxes attributable to the Division for taxable periods ending on or before the Closing Date and for the portion ending on the Closing Date of any taxable period that includes but does not end on the Closing Date (the “PRE-CLOSING TAX PERIODS”) (determined as if such taxable period ended as of the close of business on the Closing Date).

(f) The name and mark “K2” and any name or mark derived from or including the foregoing and any other name or mark owned by the Seller and not used by the Division;

(g) All rights of Seller under any liability insurance policies except for those disclosed in SCHEDULE 3.11 attached hereto; and

(h) Computer programs, systems, equipment, intangible personal property and any other assets, properties or rights of Seller used generally in the conduct of Seller’s business and not used or held for use in the Division.

1.3 FURTHER ASSURANCES. On the Closing Date and from time to time thereafter, Seller will execute and deliver to Buyer such instruments of sale, transfer, conveyance, assignment and delivery, consents, assurances, powers of attorney and other instruments as may be reasonably requested by Buyer in order to vest in Buyer all right, title and interest in and to the Acquisition Assets and otherwise in order to carry out the purpose and intent of this Agreement.

2. CONSIDERATION TO BE PAID BY BUYER.

2.1 PURCHASE PRICE FOR ACQUISITION ASSETS. The aggregate purchase price for the Acquisition Assets (the “PURCHASE PRICE”) shall be $27,500,000, subject to adjustment under Section 2.2. The Purchase Price shall be paid to Seller by wire transfer at the Closing (as hereinafter defined) to an account designated by Seller at least three (3) business days prior to the Closing Date.

 

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2.2 ADJUSTMENT TO PURCHASE PRICE. The Purchase Price shall be subject to adjustment after the Closing in accordance with the following procedure:

(a) As soon as practicable (but in no event later than forty-five (45) days after the Closing Date), Seller, with Buyer’s cooperation, shall prepare and deliver an unaudited balance sheet of the Division as of the Closing Date (the “CLOSING DATE BALANCE SHEET”) including a calculation of the Net Assets, as of the Closing Date. As used herein, “NET ASSETS” shall mean the net assets of the Division as shown on the Closing Balance Sheet. In connection with the Closing Date Balance Sheet, the physical inventory of the Acquisition Assets shall be jointly conducted by Seller and Buyer. The Closing Date Balance Sheet and Net Asset calculation: (i) shall include only the Acquisition Assets and Assumed Liabilities of the Division, (ii) shall be prepared in accordance with GAAP, except as set forth on SCHEDULE 3.4.2, and (iii) in all cases where there is a permissible choice among accounting principles and procedures in accordance with GAAP, shall be prepared on a basis consistent with Seller’s Balance Sheet as of April 2, 2000, except as indicated on APPENDIX A. Attached hereto as APPENDIX A is statement of Net Assets of the Division, as of April 2, 2000, which illustrates, and shall be used as a model, in preparing the statement of Net Assets as of the Closing Date. Seller’s Chief Financial Officer shall certify that the Closing Date Balance Sheet fairly reflects the financial position of the Division as of the Closing Date (exclusive of the Excluded Assets) and is prepared in accordance with the provisions of this Section 2.2(a).

(b) If the Net Assets of the Division set forth in the Closing Date Balance Sheet are less than $24,827,000, the Purchase Price shall be reduced to the extent of the difference. If the Net Assets of the Division set forth in the Closing Date Balance Sheet are more than $24,827,000, the Purchase Price shall be increased to the extent of the difference. The amount of any increase in the Purchase Price shall be paid by Buyer to Seller within five (5) days after final determination of the Net Assets, with interest from the date of Closing at the prime rate of Bank of America N.T.S.A., as in effect from time to time. The amount of any reduction in the Purchase Price shall be refunded by Seller to Buyer within five (5) days after such final determination, with interest for the period and at the rate set forth in the preceding sentence. Any amounts payable hereunder shall be payable by wire transfer in immediately available funds to an account designated by the party entitled to such payment at least one day before the wire transfer.

(c) Buyer shall have a reasonable time, not in excess of thirty (30) days, to review the Closing Date Balance Sheet and the Net Assets and Seller shall cooperate in furnishing all such working papers and accounting records as Buyer shall reasonably request for such purpose. If Buyer does not timely deliver a “Contest Notice” (as hereinafter defined) in accordance with Section 2.2(d), the Closing Date Balance Sheet, Net Assets and the Purchase Price adjustment derived therefrom will be final and binding on the parties. If a Contest Notice is so delivered, the Closing Date Balance Sheet, Net Assets and any adjustment to the Purchase Price shall be determined as set forth below.

 

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(d) In the event that Buyer contests any part of the Purchase Price as adjusted, as set forth above, Buyer shall give Seller written notice of its objections thereto (a “CONTEST NOTICE”) within thirty (30) days following the delivery of the Closing Date Balance Sheet. Any such Contest Notice shall specify in reasonable detail the nature of any disagreement asserted and the amount claimed by Buyer. Buyer’s right to contest the Purchase Price, as adjusted hereunder, shall be limited to the inclusion on the Closing Date Balance Sheet of assets that do not exist. Without limiting the generality of the foregoing, Buyer expressly waives any right to challenge the amount of any reserve or accrual reflected on the Closing Date Balance Sheet so long as there is no downward movement in such reserve or accrual reflected in Seller’s Balance Sheet as of April 2, 2000.

(e) During the period of thirty (30) days following the timely delivery of any such Contest Notice, Buyer and Seller shall attempt to resolve any differences which Buyer and Seller may have with respect to any matter specified in the Contest Notice (which resolution, if any, shall be final and binding on all the parties). If, at the end of such thirty (30) day period, Buyer and Seller shall fail to reach written agreement with respect to all of such matters, then the matters specified in any Contest Notice with respect to which such written agreement has not been reached (the “DISPUTED MATTERS”) shall be submitted for determination by an independent certified public accounting firm of national standing (the “ACCOUNTANTS”) mutually selected by Buyer’s accountants and Seller’s accountants, respectively. The Accountants shall consider only the Disputed Matters. The Accountants shall not be required to follow any particular rules of procedure, it being the intention of the parties to create a flexible, practical and expeditious method for resolving any disagreement hereunder. The Accountants’ decision with respect to all Disputed Matters shall be final and binding upon the parties hereto.

(f) Each party shall bear its own costs and expenses for its independent auditors. The fees and expenses of the Accountants incurred in connection with its review and determination of any Disputed Matters shall be borne one-half by Buyer and one-half by Seller.

2.3 ASSUMED LIABILITIES. As further consideration for consummation of the transactions contemplated hereby, subject to Section 2.4 hereof, at the Closing, Buyer shall assume and agree to thereafter pay when due and discharge and indemnify Seller and hold Seller harmless with respect to the following liabilities (the “ASSUMED LIABILITIES”):

(a) All obligations and liabilities of Seller under Contracts that are to be acquired by Buyer pursuant to the provisions of this Agreement;

(b) All accounts payable owed by Seller arising out of operations of the Division or otherwise in respect of the Division;

(c) All obligations and liabilities (other than non-contractual product liability claims for defective products) in respect of any and all products made (if the date of manufacture is readily determinable) and sold by the Division on or after the Closing Date, including obligations and liabilities for refunds, adjustments, allowances, rebates, repairs, exchanges, returns and warranties of merchantability and other contractual warranty claims;

 

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(d) All non-contractual obligations and liabilities in respect of product liability claims relating to any and all defective products (other than building products) made (if the date of manufacture is readily determinable) and sold by the Division on or after the Closing Date, including obligations and liabilities for property damage and related refunds, adjustments, allowances, repairs, exchanges, returns, claims of warranty of merchantability and other claims;

(e) All non-contractual obligations and liabilities in respect of product liability claims for any and all defective building products made (if the date of manufacture is readily determinable) and sold by the Division on or after the Closing Date, including obligations and liabilities for property damage and related refunds, adjustments, allowances, repairs, exchanges, returns, claims of warranty of merchantability and other claims;

(f) Environmental Liabilities related to the real property included in the Acquired Assets relating to any facts or circumstances arising on or after the Closing Date;

(g) All obligations and liabilities in respect of personal injury or property damage claims with respect to any real property included in the Acquired Assets as to which the date of such damage or injury (as determined in a manner consistent with the determination of the date of loss under an “occurrence based” insurance policy) was on or after the Closing Date;

(h) All obligations and liabilities arising under or in connection with (i) accrued payroll and accrued vacation with respect to all Transferred Employees; (ii) accrued benefits other than severance benefits, if any, under the Paper Industry Union Management Pension Fund (the “PAPER INDUSTRY PLAN”); (iii) severance of any Transferred Employee who is terminated as a result of or in connection with the transactions contemplated hereby, who does not accept Buyer’s offer of employment pursuant to Section 6.11 hereof or who terminates employment with Buyer after the Closing Date; (iv) post-retirement medical benefits for Transferred Employees pursuant to the terms of any applicable Collective Bargaining Agreement; and (v) any wrongful termination, grievance or other employment related claim brought by any Transferred Employee whose employment is terminated following the Closing Date to the extent that such claim is solely attributable to the actions of Buyer subsequent to the Closing Date; provided, however, that (A) (x) accrued payroll with respect to all Transferred Employees, (y) accrued vacation with respect to all hourly employees and (z) the monthly liabilities with respect to the Paper Industry Plan accrued through the Closing Date shall only be included to the extent reflected or reserved on the Closing Balance Sheet and (B) with respect to claims arising pursuant to benefits described in clause (iv) of this Section 2.3(h), Buyer will administer all such claims and Seller shall reimburse Buyer for the portion of any payments attributable to the Transferred Employees based upon years of service prior to the Closing Date; and

(i) All other liabilities, contingent or otherwise, owed by Seller, to the extent arising prior to the Closing Date out of the conduct of the Division Business by Seller and to the extent that they are reflected or reserved on the Closing Date Balance Sheet (including, without limitation, obligations and liabilities in respect of products sold by the Division prior to the Closing Date). In addition to the foregoing, to the extent of the unused Basket Amount referred to in Section 9.4(a), Buyer shall assume obligations and liabilities of the kind referred to in Section 2.3(c) above in respect of products sold by the Division prior to the Closing Date.

 

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2.4 LIABILITIES NOT ASSUMED BY BUYER. Buyer shall not be deemed by anything contained in this Agreement to have assumed and Seller hereby agrees to fully pay and perform in a prompt and timely manner and to indemnify Buyer and hold Buyer harmless with respect to the following excluded liabilities (the “EXCLUDED LIABILITIES”):

(a) Any liability of Seller to any person or entity the existence of which constitutes a breach of any covenant, agreement, representation or warranty of Seller contained in this Agreement;

(b) Any liability of Seller for any federal, state, local, foreign or other taxes, except to the extent liabilities or reserves therefor are included on the Closing Date Balance Sheet;

(c) Any non-contractual obligations and liabilities in respect of product liability claims related to any defective products (other than building products) made (if the date of manufacture is readily determinable) or sold by the Division prior to the Closing Date, including obligations and liabilities for property damage and related refunds, adjustments, allowances, repairs, exchanges, returns, claims of warranty of merchantability and other claims;

(d) Any non-contractual obligations and liabilities in respect of product liability claims related to any defective building products made (if the date of manufacture is readily determinable) or sold by the Division prior to the Closing, including obligations and liabilities for property damage and related refunds, adjustments, allowances, repairs, exchanges, returns, claims of warranty of merchantability and other claims

(e) All Environmental Liabilities relating to the real property included in the Acquired Assets arising out of any facts or circumstances existing or arising prior to the Closing Date;

(f) All obligations arising in respect of personal injury or property damage claims with respect to any real property included in the Acquired Assets as to which the date of such injury or loss (as determined in a manner consistent with the determination of the date of loss under an “occurrence based” insurance policy) was prior to the Closing Date;

(g) Except as set forth in SECTION 2.3(h) or 2.3(i) and except for liabilities under Contracts to be acquired by Buyer as a part of the Acquired Assets, any liability of Seller under any “EMPLOYEE BENEFIT PLANS” for any event occurring prior to the Closing Date or any obligation for benefits accrued prior to the Closing Date. “Employee Benefit Plans” means any employee pension benefit plans (as defined in Section (3)(2) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”)), employee welfare benefit plans (as defined in Section 3(1) of ERISA, bonus, deferred compensation, incentive compensation, stock ownership, phantom stock, disability, death, dependent care, employee assistance, scholarship or other plan or program, arrangement or understanding (whether or not covered by ERISA) maintained in whole or in part, contributed to, or required to be contributed to by Seller for the benefit of any present or former officer, employee, or director of Seller or any entity which is under common control with Seller within the meaning of Section 414 of the Internal Revenue Code of 1986 (the “CODE”), any such entity being hereafter referred to as a “COMMONLY CONTROLLED ENTITY”);

 

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(h) Any liability or obligation relating to claims related to wrongful termination, occupational safety, workers’ or workmen’s compensation or grievance proceedings arising out of events occurring on or before the Closing Date except to the extent any of the foregoing (i) arise in connection with the termination of any Transferred Employee following the Closing Date or (ii) are reflected on the Closing Date Balance Sheet;

(i) Any liability arising under or in connection with the matters set forth in Schedules 3.8.1, 3.8.2 and 3.15 attached hereto, except, in each case, to the extent of any reserve therefor set forth on Closing Balance Sheet and except, in the case of Section 3.15, to the extent referred to in the last sentence of Section 2.3(i); and

(j) Any liability or obligation arising as a result of any breach by Seller prior to the Closing Date of its obligations under that certain Contract dated December 26, 1995 between the Division and the Michigan Department of Environmental Quality Waste Management Division (the “Michigan Contract”).

2.5 ALLOCATION OF PURCHASE PRICE. The parties hereto agree to allocate the Purchase Price prior to the Closing among the Acquisition Assets. Seller and Buyer shall jointly complete and separately file Form 8594 with their respective federal income tax returns for the tax year in which the Closing Date occurs in accordance with such allocation, and unless required by law, each of the parties shall refrain from taking a position on any income, transfer or gains tax return, before any governmental agency charged with the collection of any such tax or in any judicial proceeding that is in any manner inconsistent with the terms of any such allocation without written consent of the other in each instance.

3. REPRESENTATIONS AND WARRANTIES OF SELLER.

Seller represents and warrants to Buyer as follows:

3.1 ORGANIZATION AND GOOD STANDING. Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, with full corporate power to carry on the business of the Division as it is now and has since its organization been conducted and to own, lease or operate the Acquisition Assets and is duly licensed or qualified to do business and in good standing as a foreign corporation under the laws of every jurisdiction in which the name of the activities conducted by Seller and/or the character of the assets owned or leased by Seller makes such qualification or license necessary, except for those jurisdictions where the failure to be so qualified would not have a Material Adverse Effect . As used in this Agreement, “MATERIAL ADVERSE EFFECT” means any change in or effect on the business or properties of the Division that (a) is or is reasonably likely to be materially adverse to the business, operations, properties, condition (financial or otherwise), assets or liabilities of the Division taken as a whole (excluding adverse changes that are the result of: (i) economic factors affecting the economy as a whole and (ii) the announcement and pendency of the transactions contemplated hereby) or (b) materially impairs or prohibits the ability of Seller and Buyer to consummate the transactions contemplated by this Agreement.

3.2 AUTHORIZATION OF AGREEMENT. Seller has all requisite power and authority to enter into this Agreement and to consummate the transactions contemplated hereby.

 

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This Agreement and all other agreements and instruments to be executed by Seller in connection herewith have been (or upon execution will have been) duly executed and delivered by Seller, have been effectively authorized by all necessary action, corporate or otherwise, and constitute (or upon execution will constitute) legal, valid and binding obligations of Seller, enforceable against Seller in accordance with their respective terms.

3.3 OWNERSHIP OF ACQUISITION ASSETS OWNERSHIP OF ACQUISITION ASSETS. Seller is the lawful owner of or, in the case of leased assets, has the right to use and transfer to Buyer each of the Acquisition Assets, and the Acquisition Assets are free and clear of all mortgages, pledges, liens, security interests, encumbrances and restrictions of every kind and nature (collectively, “LIENS”), other than Liens disclosed pursuant to this Agreement and encumbrances and restrictions affecting real property which do not materially interfere with the present use thereof. The delivery to Buyer of the instruments of transfer of ownership contemplated by this Agreement will vest good and marketable title to the Acquisition Assets in Buyer, free and clear of all Liens, except as referred to in the preceding sentence. The Acquisition Assets include all assets, rights and interests necessary for the conduct of the Division, as presently conducted, except as disclosed in SCHEDULE 3.3.

3.4. FINANCIAL CONDITION.

3.4.1 FINANCIAL STATEMENTS. Seller has furnished to Buyer unaudited financial statements of the Division, consisting of balance sheets as of December 31, 1999 and consolidated statements of income and cash flows for the year then ended (the “FINANCIAL STATEMENTS”). The Financial Statements, including the footnotes thereto, are attached hereto as Schedule 3.4.1.

3.4.2 ACCOUNTING STANDARDS. The Financial Statements: (i) have been prepared in accordance with the books and records of Seller; (ii) have been prepared in accordance with GAAP in a manner consistent with past practice, except for adjustments as set forth on SCHEDULE 3.4.2; and (iii) present fairly the financial position and results of operations of the Division at and for the fiscal periods indicated therein; except for the absence of certain information and footnotes required for complete financial statements prepared in accordance with GAAP and except as disclosed in the footnotes thereto.

3.4.3 ABSENCE OF CERTAIN CHANGES. Since December 31, 1999, there has not been relating to the Division:

(a) any sale, distribution, transfer or subjection to any Lien of any of Seller’s assets, except sales of inventory in the ordinary and usual course of business;

(b) any increase in the salary or other compensation or benefits payable or to become payable to any officer, director or employee, other than routine increases in the ordinary course of business consistent with past practices;

(c) any adoption of a new benefit plan or any amendment to an existing benefit plan for the employees or officers of the Division;

(d) any transaction by Seller not in the ordinary and usual course of business;

 

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(e) any Material Adverse Effect;

(f) any damage, destruction or loss, whether or not covered by insurance, which has a Material Adverse Effect;

(g) any material alteration in the manner in which Seller keeps its books, accounts or records or in the accounting practices therein reflected, including the recognition and computation of accrued expenses;

(h) the incurrence of any indebtedness for borrowed money or any commitment to borrow money or any guaranty, direct or indirect, of indebtedness of others, or any prepayment of long-term debt;

(i) except as listed on SCHEDULE 3.4.3(i) or as provided elsewhere herein, any acquisition or lease of or commitment to acquire or lease any realty, or any capital expenditure in excess of $50,000 individually or in the aggregate; or

(j) any change in the operations, business or manner of conducting the Division, other than changes in the ordinary and usual course of business consistent with prior practice, none of which, individually or in the aggregate, has had or is expected to have a Material Adverse Effect.

3.5 PROPERTY OF SELLER.

3.5.1 REAL PROPERTY.

(a) Except for the Owned Real Estate and the real property commonly known as the (i) Jacksonville, Florida sales office, which constitutes the leased premises under the Lease between Seller as lessee and Beach Marine as lessor (the “JACKSONVILLE OFFICE LEASE”), (ii) Jacksonville, Florida warehouse, which constitutes the leased premises under the Lease between Seller as lessee and Eastport Partner as lessor (the “JACKSONVILLE WAREHOUSE LEASE”), (iii) Adrian, Michigan railsiding, which constitutes the leased premises under the Lease between Seller as lessee and Norfolk & Western as lessor (the “ADRIAN RAILSIDING LEASE”), (iv) Adrian, Michigan Group headquarters, which constitutes the leased premises under the Lease between Seller as lessee and Mangold LLC as lessor (the “ADRIAN HEADQUARTERS LEASE”) and (v) Seattle, Washington office, which constitutes the leased premises under the Lease between Seller as lessee and Gabriel Enterprises as lessor (the “SEATTLE LEASE” and together with the Jacksonville Office Lease, the Jacksonville Warehouse Lease, the Adrian Railsiding Lease and the Adrian Headquarters Lease, the “LEASED REAL ESTATE”), each as more fully described in SCHEDULE 3.5.1, there is no parcel of real property, building or other improvement owned or leased by Seller and used by the Division. Seller owns the Owned Real Estate free and clear of all Liens and such other covenants, restrictions, easements and imperfections of title as do not materially interfere with the present use of such property;

(b) All of the buildings, fixtures and other improvements located on the Real Property are, in all material respects, in satisfactory operating condition and repair, and the operation thereof as presently conducted is not in material violation of any applicable building code, zoning ordinance or other law or regulation;

 

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(c) Seller holds valid and effective certificates of occupancy, underwriters’ certificates relating to electrical work, zoning, building, housing, safety, fire and health approvals and all other material permits and licenses required by applicable law relating to the operation of the Real Property;

(d) Seller has not experienced during the two (2) years preceding the date hereof any material interruption in the delivery of adequate quantities of any utilities (including, without limitation, electricity, natural gas, potable water, water for cooling or similar purposes and fuel oil) or other public services (including, without limitation, sanitary and industrial sewer service) required by Seller in the operation of the Division during such period; and

(e) There is no condemnation or eminent domain proceeding pending which relates to the Real Property, and, to the knowledge of Seller, there is no such proceeding threatened by any relevant governmental authority nor any such proceeding to which Seller is not a party but as to which its properties are subject which materially and adversely affects any of such properties.

3.5.2 TANGIBLE PERSONAL PROPERTY. SCHEDULE 1.1(f) or SCHEDULE 1.1(g) lists each item of tangible personal property (other than Inventory) owned by Seller or in the possession of Seller which is to be transferred to Buyer pursuant hereto and an identification of the owner of, and any agreement relating to the use of, each item of tangible personal property the rights to which are to be transferred to Buyer pursuant hereto under leases or other similar agreements included in the Contracts. Except as otherwise indicated on SCHEDULE 3.5.2, Seller owns all of the tangible personal property used in the Division free and clear of all Liens, and except as set forth in Section 1.2, all such property will be transferred to Buyer at the Closing free and clear of all Liens. Each item of such tangible personal property is located on the Real Property and is in satisfactory operating condition and repair subject to normal wear and tear.

3.5.3 INTANGIBLE PERSONAL PROPERTY. SCHEDULE 1.1(h) lists (i) an identification of each domestic and foreign patent, patent application, copyright, copyright application, trademark, trademark application, service mark, service mark application and trade name (the “INTELLECTUAL PROPERTY”) owned by Seller or used by Seller in the conduct of the business of the Division and (ii) a true and complete list of all licenses or similar agreements or arrangements to which Seller is a party either as licensee or licensor for each such item of Intellectual Property. Except as otherwise indicated on SCHEDULE 1.1(h), Seller owns or has a valid license to use all of such Intellectual Property free and clear of all Liens, and, all such Intellectual Property will be transferred to Buyer at the Closing free and clear of all Liens.

(a) There have not been any actions or other judicial or adversary proceedings involving Seller concerning any of the Intangible Personal Property included in the Acquisition Assets, nor, to the knowledge of Seller, is any such action or proceeding threatened;

 

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(b) Seller has the right and authority to use all items of Intangible Personal Property included in the Acquisition Assets in connection with the conduct of the Division in the manner presently conducted and to convey such right and authority to Buyer, and such use does not, to the knowledge of Seller, conflict with, infringe upon or violate any patent, copyright, trademark, service mark, trade secret, trade name or other right of any other person, firm or corporation;

(c) There are no outstanding, nor, to the knowledge of Seller, are there any threatened, disputes or disagreements with respect to any licenses or similar agreements or arrangements included in the Intangible Personal Property included in the Acquisition Assets and the consummation of the transactions contemplated hereby will not impair any right or privilege enjoyed by Seller under any license granted to Seller by others, or give rise to the termination or cancellation thereunder except as disclosed in Schedule 1.1(h) attached hereto;

(d) The conduct of the business of the Division does not, to the knowledge of Seller, conflict with any patent, copyright, trademark, service mark, trade secret, trade name or other similar rights of others; and

(e) To the knowledge of Seller (i) there is no person, firm or corporation engaging in any activity or using any of the Intellectual Property that infringes upon, or conflicts with, the rights of the Division, and (ii) there has been no misappropriation of any material trade secrets or other confidential rights of the Division by any person, firm or corporation.

3.6 AGREEMENT NOT IN BREACH OF OTHER INSTRUMENTS. Except as set forth in SCHEDULE 3.6, the execution, delivery and performance of this Agreement by Seller and the consummation of the transactions contemplated hereby will not result in a breach of any of the terms and provisions of, or constitute a default under, or conflict with, any Contract or any other material agreement, indenture or other instrument to which Seller is a party or by which Seller is bound, the Certificate of Incorporation or Bylaws of Seller, or any judgment, decree, order or award of any court, governmental body or arbitrator, or any law, rule or regulation applicable to Seller.

3.7 LABOR AND EMPLOYMENT MATTERS; PENSION AND EMPLOYEE BENEFIT PLANS.

(a) Except as set forth in SCHEDULE 3.7 attached hereto, there is no (i) collective bargaining agreement or other labor agreement to which Seller is a party or by which it is bound; (ii) employment, profit sharing, deferred compensation, bonus, stock option, stock purchase, retainer, consulting, retirement, welfare, incentive or severance plan, policy or contract to which Seller is a party or by which it is bound; or (iii) each employee benefit plan and arrangement including plans described in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), in which Transferred Employees (as defined in Section 6.11) currently participate. Seller has made available to Buyer copies of all current documents and instruments governing such plans;

 

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(b) Each of the plans listed in Schedule 3.7 have been administered in compliance with their terms and with all filings, reporting, disclosure and other requirements of ERISA and the Internal Revenue Code of 1986, as amended (the “Code”) and each plan (together with its related funding instrument) which is an employee pension benefit plan is qualified under Section 401 of the Code and the regulations issued thereunder, and each plan and its related funding instrument have been the subject of a favorable determination letter issued by the Internal Revenue Service holding that such plan and its related funding instrument are so qualified;

(c) Other than routine claims for benefits made in the ordinary course of business, there are no pending claims, investigations, or causes of action (“Claims”) and to the best knowledge of Seller and its affiliates, no such claims are threatened against any plan listed in Schedule 3.7 or fiduciary of any such plan by any participant, beneficiary or governmental agency with respect to the qualification or administration of such plan;

(d) No withdrawal liability (as defined in Section 4021, 4063 or 4064 of the Code or ERISA) has been, or will be, incurred as a result of the transactions contemplated by thi