PURCHASE AGREEMENT HEALTHTRONICS, INC.

Exhibit 10.1

 

Execution Copy

 

PURCHASE AGREEMENT

 

by and between

 

HEALTHTRONICS, INC.

 

as “Seller”

 

and

 

SANUWAVE, INC.,

 

as “Buyer”

 

Dated as of August 1, 2005

TABLE OF CONTENTS

 

 

i

 

ii

 

EXHIBITS AND SCHEDULES

 

 

iii

 

iv

PURCHASE AGREEMENT

 

THIS PURCHASE AGREEMENT (this “ Agreement ”), dated as of August 1, 2005, is entered into by and between HEALTHTRONICS, INC., a Georgia corporation (“ Seller ”), and SANUWAVE, INC., a Delaware corporation (“ Buyer ”).

 

WITNESSETH

 

WHEREAS, Seller is the direct holder of all of the outstanding limited liability company interests of HT Orthotripsy Management Company, LLC (“ HTO ”), which acts as the general partner of certain operating subsidiaries of Seller;

 

WHEREAS, Seller desires to sell to Buyer, and Buyer desires to purchase from Seller, all of the outstanding limited liability company interests of HTO and certain other assets comprising or related to the business of non-invasive surgical solutions for Orthopedic Conditions in animals and humans that is currently conducted or as anticipated to be conducted based on current research and development efforts and strategic plans by Seller through the Partnerships (as defined below) and through certain non-acquired entities (the “ Business ”), all on the terms and subject to the conditions set forth in this Agreement.

 

NOW, THEREFORE, in consideration of the premises and the representations, warranties, covenants and agreements contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which is acknowledged, the parties agree as follows:

 

ARTICLE I

DEFINITIONS

 

1.1 Definitions . In addition to the other words and terms defined elsewhere in this Agreement, as used in this Agreement, the following words and terms shall have the meanings specified or referred to below:

 

“ 1060 Forms ” has the meaning specified in Section 2.11.

 

“ Accountants ” has the meaning specified in Section 2.10(c).

 

“ Accounts Receivable ” means the gross amounts of accounts and notes receivable attributable to the Business.

 

“ Affiliate ” means, with respect to any Person, any other Person who directly or indirectly controls, is controlled by or is under common control with such Person.

 

“ Agreement ” has the meaning specified in the preamble of this Agreement.

 

“ Allocation ” has the meaning specified in Section 2.11.

 

“ Applicable Rate ” has the meaning specified in Section 2.10(d).

 

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“ Base Working Capital ” has the meaning specified in Section 2.10(a).

 

“ Business ” has the meaning specified in the Recitals.

 

“ Business Employees ” means all of the employees of the Business who are engaged in the conduct of the Business as of the date hereof.

 

“ Buyer ” has the meaning specified in the preamble of this Agreement.

 

“ Buyer Indemnified Party ” has the meaning specified in Section 6.2(a).

 

“ Buyer Shares ” has the meaning specified in Section 2.9.

 

“ Claim ” means any claim, demand, cause of action, chose in action, right of recovery or right of set-off of whatever kind or description against any Person.

 

“ Claim Notice ” has the meaning specified in Section 6.4.

 

“ Closing ” has the meaning specified in Section 2.7.

 

“ Closing Balance Sheet ” has the meaning specified in Section 2.10(b).

 

“ Closing Date ” means the date hereof.

 

“ Closing Net Working Capital ” has the meaning specified in Section 2.10(b).

 

“ Code ” means the Internal Revenue Code of 1986, as amended.

 

“ Common Stock ” has the meaning specified in Section 2.9.

 

“ Common Stock Equivalents ” means securities of any kind (including “phantom” securities) issued by Buyer convertible into or exchangeable for Common Stock or options, warrants or other rights to purchase or subscribe for Common Stock or securities convertible into or exchangeable for Common Stock.

 

“ Competing Business ” has the meaning specified in Section 5.7(c).

 

“ Confidentiality Agreement ” means that certain confidentiality agreement, dated as of January 21, 2005, by and between Seller and Prides Capital Partners, LLC.

 

“ Contract ” means, with respect to any Person, any oral or written agreement, contract, understanding, arrangement, indenture, loan, note, mortgage, instruments, license, sales order, purchase order, commitment or lease of any kind or character to which such Person is a party.

 

“ Control ” (including its correlative meanings “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 or policies of a Person, whether through the ownership of securities or partnership or other interests, by contract or otherwise.

 

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“ Current Assets ” means with respect to HTO and the Partnerships, (i) cash, (ii) accounts receivable net of contractual allowance reserves, reserves for bad debt, and additional reserves, (iii) vendor deposits and (iv) prepaid assets, in each case determined in accordance with GAAP and in a manner consistent with the determination of the corresponding amounts reflected on the Statement of Net Assets, after elimination of related party receivables.

 

“ Current Liabilities ” means with respect to HTO and the Partnerships, (i) accounts payable, (ii) customer deposits, (iii) accrued expenses and (iv) accrued facilities fees, in each case determined in accordance with GAAP and in a manner consistent with the determination of the corresponding amounts reflected on the Statement of Net Assets, after elimination of related party payables.

 

“ Deficit Amount ” has the meaning specified in Section 2.10(d).

 

“ Determination Date ” has the meaning specified in Section 2.10(c).

 

“ Disclosure Schedule ” has the meaning specified in Article III.

 

“ Encumbrance ” means any lien (statutory or otherwise), mortgage, deed of trust, pledge, hypothecation, assignment, charge, security interest, option to purchase, easement, restrictive covenant, right of first refusal, preemptive right, encroachment or conditional sale, or other title retention agreement, or any other restriction or third party right (including licenses), including restrictions on the right to vote equity interests whether voluntarily incurred or arising by operation of law.

 

“ Environmental Law ” means any statute, law, rule, regulation, ordinance, code, policy, rule of common law or other legally enforceable requirement of any Governmental Authority, and any judicial or administrative interpretation thereof, including any judicial or administrative order, consent decree or judgment, regulating, relating to or imposing liability or standards of conduct concerning (i) protection of the environment or of human health, including employee health and safety or (ii) Hazardous Materials, including without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. § 9601 et seq ., the Resource Conservation and Recovery Act, as amended, 42 U.S.C. § 6901 et seq .; the Federal Water Pollution Control Act, as amended, 33 U.S.C. § 1251 et seq .; the Toxic Substances Control Act, 15 U.S.C. § 2601 et seq .; the Clean Air Act, 42 U.S.C. § 7401 et seq .; and the Safe Drinking Water Act, 42 U.S.C. § 3908 et seq .]

 

“ Environmental Permits ” means any and all Governmental Permits pursuant to or required under any Environmental Law.

 

“ Environmental Report ” means any report, study, assessment, audit or other similar document that addresses any issue of actual or potential noncompliance with, actual or potential liability under or cost arising out of, or actual or potential impact on business in connection with, any Environmental Law or any proposed or anticipated change in addition to Environmental Law, that may affect HTO or any Partnership.

 

“ Equipment Item ” has the meaning specified in Section 5.14 .

 

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“ Estimated Net Working Capital ” has the meaning specified in Section 2.10(a) .

 

“ Excluded Contracts ” means those Contracts listed on Schedule 1.1(a) .

 

“ Excluded Liabilities ” has the meaning specified in Section 2.4.

 

“ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended, and the regulations promulgated thereunder.

 

“ Fair Market Value ” means as determined in good faith by the board of directors of Buyer.

 

“ FDA ” has the meaning specified in Section 3.27(a).

 

“ Final Purchase Price ” has the meaning specified in Section 2.9.

 

“ Financial Statements ” has the meaning specified in Section 3.7.

 

“ First Note ” has the meaning specified in Section 2.9.

 

“ GAAP ” means United States generally accepted accounting principles.

 

“ Governmental Authority ” means any court, department, commission, board, bureau, agency, official or other regulatory, administrative or similar authority of any federal, state, local, foreign or multinational government.

 

“ Governmental Order ” means any order, writ, injunction, decree, award, judgment or ruling entered by or with any Governmental Authority.

 

“ Governmental Permits ” has the meaning specified in Section 3.11.

 

“ Hazardous Material ” means (i) any gasoline or petroleum (including crude oil or any fraction thereof) or petroleum products, radioactive materials, molds, asbestos in any form, urea formaldehyde foam insulation, polychlorinated biphenyls, transformers or other equipment that contain polychlorinated biphenyls, and radon gas and (ii) any chemicals, materials or substances defined as “hazardous materials,” “extremely hazardous wastes,” “restricted hazardous wastes,” “toxic substances,” “toxic pollutants,” or words of similar import or any other substance the presence of or exposure to which could result in liability, under any applicable Environmental Law.

 

“ Health Care Law ” means any statute, law, rule, regulation, ordinance, code, policy, manual provision, administrative guidance, rule of common law or other legally enforceable requirement of any Governmental Authority, and any judicial or administrative interpretation thereof, including any judicial or administrative order, consent decree or judgment, regulating, relating to or imposing liability or standards of conduct relating to the regulation of products of the Business, including, without limitation, their design, development, manufacture, labeling, storage, transport, marketing, sale, reporting, and recordkeeping in all jurisdictions in which such acts or any of them occur or are reasonably likely to occur or such products or any of

 

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them are likely to be sold or used, including without limitation, the United States Food, Drug and Cosmetic Act (21 U.S.C. §§ 301 et seq .), Federal Anti-Kickback Statute (42 U.S.C. § 1320a-7b(b)), Stark Law (42 U.S.C. § 1395nn), Civil False Claims Act (31 U.S.C. §§ 3729 et seq. ), Administrative False Claims Act (42 U.S.C. § 1320a-7b(a)), Health Insurance Portability and Accountability Act (42 U.S.C. § 1320d et seq .), Exclusion Laws (42 U.S.C. 1320a-7) and, for each of the foregoing, all comparable state legal requirements and the rules and regulations promulgated thereunder by Governmental Authorities.

 

“ Health Care Permits ” means any and all Governmental Permits pursuant to or required under any Health Care Law.

 

“ HHS ” has the meaning specified in Section 3.27(a).

 

“ HMT ” means HMT High Medical Technologies AG.

 

“ HTO Interests ” means all of the outstanding limited liability company interests of HTO.

 

“ Increase Amount ” has the meaning specified in Section 2.10(d).

 

“ Indemnified Party ” has the meaning specified in Section 6.4.

 

“ Indemnifying Party ” has the meaning specified in Section 6.4.

 

“ Indemnity Claim ” has the meaning specified in Section 6.4.

 

“ Initial Public Offering ” means any public offering of equity securities of Buyer pursuant to an effective registration statement under the Securities Act (other than pursuant to a registration statement on Form S-8 or comparable form for a private issuer or otherwise relating to equity securities issuable under any employee benefit plan) of the Common Stock.

 

“ Initial Purchase Price ” has the meaning specified in Section 2.9.

 

“ Intellectual Property ” means all intellectual property, whether registered or unregistered, anywhere in the world, used in the Business as presently conducted including, without limitation: (i) inventions, discoveries, processes, designs, techniques, developments, technology, and related improvements, whether or not patentable; (ii) patents and applications therefor and all divisionals, reissues, renewals, registrations, confirmations, re-examinations, certificates of inventorship, extensions, continuations and continuations-in-part thereof (“ Patents ”); (iii) trademarks, trade dress, service marks, service names, trade names, brand names, logo, business symbols, or other source indicators whether registered or unregistered, and applications to register the foregoing, including all extensions and renewals thereof and all goodwill associated therewith and all common law rights, relating thereto (“ Trademarks ”); (iv) copyrights and works of authorship in any media, including writings, designs, software, marketing materials, Internet site content, proprietary or copyrightable elements of works of authorship, whether registered or unregistered, and applications to register the same (“ Copyrights ’); (v) know-how, trade secrets, confidential or proprietary information, data, methods, processes, practices, formulas and techniques, computer software programs and

 

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software systems, including all databases, customer information or any aggregation thereof , and all related documentation and materials (“ Trade Secrets ”); (vi) universal resource locators and Internet domain names (“ Domain Names ”), and (vii) any and all similar rights in intellectual property or proprietary information, including rights provided by treaties, conventions and common law.

 

“ Intercompany Agreement ” has the meaning specified in Section 3.20.

 

“ Interests ” means the HTO Interests, the Other Interests and the Partnership Interests, collectively.

 

“ IP Transferring Parties ” has the meaning specified in Section 3.16(a).

 

“ Knowledge ” means the actual knowledge, without independent investigation, of such Person.

 

“ Losses ” means, in respect of any obligation of any party to this Agreement to indemnify any Person pursuant to the terms of this Agreement, any and all sustained or incurred losses, liabilities, obligations, damages, awards, judgments, settlement payments, fines, complaints, claims, demands, assessments and deficiencies and other reasonable out-of-pocket costs, expenses and charges, including interest, penalties, reasonable attorneys’ fees and other amounts incurred in proceedings relating to Losses or in enforcing an Indemnified Party’s right of indemnification against any Indemnifying Party or with respect to any appeal, but all of which Losses shall be reduced by any insurance proceeds (net of the reasonable expenses of the recovery thereof) actually received by the Indemnified Party with respect to the events or transactions giving rise to such Losses.

 

“ Material Adverse Effect ” means any change or effect that is material and adverse to the business, prospects, assets, liabilities, financial condition or results of operations of the Business or HTO, taken as a whole, provided that any change or effect to the extent resulting from the entering into of this Agreement or the consummation of transactions contemplated by this Agreement or the other Transaction Agreements, or the announcement of any of the forgoing shall be deemed not to constitute a Material Adverse Effect.

 

“ Material Supplier ” has the meaning specified in Section 3.13.

 

“ Multi-Product Patent Rights ” means the rights in U.S. and foreign patents and patent applications being transferred by Seller to Buyer which also relate to Seller’s existing litho-related businesses.

 

“ Net Working Capital ” means, Current Assets minus Current Liabilities as of June 30, 2005.

 

“ Net Working Capital Adjustment Amount ” has the meaning specified in Section 2.10(d).

 

“ Ordinary Course of Business ” shall mean the ordinary course of business of HTO consistent with past practice.

 

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“ Organizational Documents ” means the charter, articles, memorandum or certificate of incorporation or association, partnership agreement, certificate of limited partnership, operating agreement, limited liability company agreement, certificate of formation, bylaws, stockholder or shareholder agreements and/or similar formation or governance documents and agreements of any Person, whether or not filed with any Governmental Authority, including any amendments thereto.

 

“ Orthopedic Conditions ” means all uses of shock wave technology for treatment of bone, tendonopathy, skin wound, diabetic ulcers, cardiac, dental and neural medical conditions in humans and all uses of shock wave technology for treatment of any condition in animals.

 

“ Other Interests ” means the partnership interests of each of the Partnerships held by Seller or any of its Affiliates (other than HTO) set forth on Schedule 1.1(d) hereto.

 

“ Other Sellers ” has the meaning specified in Section 3.1(b) .

 

“ Partnership Interests ” means the partnership interests of each of the Partnerships.

 

“ Partnerships ” means those partnerships listed on Schedule 1.1(c) hereto.

 

“ Permitted Encumbrance ” means, with respect to any Person and its assets or properties, (a) Encumbrances on any assets or property of such Person that do not or would not reasonably be expected to materially adversely affect such Person’s use of such assets or properties as currently utilized; (b) deposits or pledges made in the Ordinary Course of Business in connection with worker’s compensation, unemployment insurance, old-age pensions and other social security benefits; (c) Encumbrances securing the performance of bids, tenders, leases, contracts (other than for the repayment of debt), statutory obligations, surety, customs and appeal bonds and other obligations of like nature, incurred as an incident to and in the Ordinary Course of Business; (d) Encumbrances imposed by law, such as carriers’, warehousemen’s, mechanics’, materialmen’s, landlords’, laborers’, suppliers’ and vendors’ liens, incurred in the Ordinary Course of Business and securing obligations which are not yet due or which are being contested in good faith by appropriate proceedings; (e) Permitted Tax Liens; (f) survey exceptions, use, zoning or planning restrictions, easements, irregularities, licenses, rights of way, declarations, reservations, provisions, covenants, conditions, waivers (and with respect to leasehold interests, Encumbrances and other obligations incurred, created, assumed or permitted to exist and arising by, through or under a landlord or owner of the leased property, with or without consent of the lessee) which are of record or which do not materially impair the use or value of any parcel of property of such Person as presently conducted; and (g) any extensions, renewals and replacements of any of the foregoing.

 

“ Permitted Tax Liens ” means liens for current Taxes not yet due and payable.

 

“ Person ” means and includes an individual, a partnership, a corporation, a limited liability company, a trust, a joint venture, an unincorporated organization, an association, a joint stock company and any Governmental Authority (or any department, agency or political subdivision thereof).

 

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“ Post-Closing Tax Period ” means any Tax Period beginning after the Closing Date and that portion of any Straddle Period beginning after the Closing Date.

 

“ Pre-Closing Tax Period ” means any Tax Period ending on or before the Closing Date and that portion of any Straddle Period ending on the Closing Date.

 

“ Registered Intellectual Property ” shall mean, collectively, all U.S. or foreign Patents, registered Copyrights, registered Trademarks and trade names, Domain Names and applications for any of the foregoing.

 

“ Representative ” means, with respect to any Person, any officer, director, employee, principal, attorney, agent or other authorized representative of such Person.

 

“ Retained Business ” means any business operations or activities of Seller or its Affiliates (other than HTO or the Partnerships) other than those businesses, operations and activities of Seller constituting the Business as of the Closing Date.

 

“ Scheduled Contracts ” means those Contracts set forth or which are required to be set forth on Schedule 3.12(a) hereto.

 

“ Second Note ” has the meaning specified in Section 2.9.

 

“ Securities Act ” means the Securities Act of 1933, as amended.

 

“ Seller ” has the meaning specified in the preamble of this Agreement.

 

“ Seller Employees ” has the meaning specified in Section 3.20(b).

 

“ Seller Indemnified Parties ” has the meaning specified in Section 6.3(a).

 

“ Seller Plans ” has the meaning specified in Section 3.20(b).

 

“ Seller Tax Group ” means the “affiliated group” (as defined in Section 1504(a) of the Code without regard to the limitations contained in Section 1504(b) of the Code) that includes Seller.

 

“ Statement of Net Assets ” has the meaning specified in Section 3.7(a).

 

“ Subsidiary ” and “ Subsidiaries ” means any corporation, limited liability company, partnership, joint venture, trust, association, organization or other entity in which a Person directly or indirectly owns 50% or more of the stock or other interests the holder of which is generally entitled to vote for the election of the board of directors or other governing body of such corporation or other legal entity. For purposes of Seller, such term does not include HTO, any of the Partnerships, HMT or any of HMT’s subsidiaries.

 

“ Tax ” or “ Taxes ” means, all taxes, assessments, charges, duties, fees, levies, imposts or other governmental charges imposed by any Taxing Authority, including income taxes, transfer, gross receipt, sales, use, transfer, service, occupation, ad valorem, property,

 

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excise, severance, premium, stamp, documentary, license, registration, payroll, employment, social security, unemployment, disability, environmental (including taxes under Code Section 59A), add-on, value-added and withholding (whether payable directly or by withholding and whether or not requiring the filing of a Tax Return), together with interest, penalties or additions attributable thereto.

 

“ Tax Period ” and “ Taxable Period ” means any period prescribed by any Taxing Authority for which a Tax Return is required to be filed or a Tax is required to be paid.

 

“ Tax Return ” means any return, report or similar statement or form required to be filed with respect to any Tax (including any attached schedules and related or supporting information), including any information return, claim for refund, amended return or declaration of estimated Tax.

 

“ Taxing Authority ” means any United States federal, state or local or any foreign governmental, regulatory or administrative authority, agency or commission exercising Tax regulatory authority.

 

“ Third Party Claim ” has the meaning specified in Section 6.5.

 

“ Transaction Agreements ” has the meaning specified in Section 2.5(a).

 

“ Transferred Contracts ” means all Contracts between Seller or any of its Subsidiaries, other than any Excluded Contract, that is related primarily or exclusively to the Business, including without limitation those Contracts listed in Schedule 1.1(b) .

 

“ Transferred Employees ” has the meaning specified in Section 5.4(a).

 

“ Transition Services Agreement ” means that certain Transition Services Agreement to be entered into by Buyer and Seller as of the Closing Date, in a form to be agreed upon by Buyer and Seller.

 

“ Transferred Intellectual Property ” means the Intellectual Property of Seller and its Subsidiaries (other than HTO or the Partnerships), other than Intellectual Property set forth on Schedule 2.2(d).

 

“ Transferred Intellectual Property Assignments ” has the meaning specified in Section 2.5(a).

 

1.2 Certain Interpretation Matters . Definitions contained in this Agreement apply to singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such terms. Words in the singular shall be held to include the plural and vice versa, and words of one gender shall be held to include the other gender as the context requires. The terms “ hereof ,” “ herein ,” “ hereby ” and “ herewith ” and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole and not to any particular provision of this Agreement. The terms “ includes ” and the word “ including ” and words of similar import shall be deemed to be followed by the words “without limitation.” Each Article, Section, paragraph, Schedule and Exhibit references are to the Articles, Sections,

 

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paragraphs, Schedules and Exhibits to this Agreement unless otherwise specified. The words “ either ” and “ or ” shall not be exclusive. Provisions shall apply, when appropriate, to successive events and transactions.

 

ARTICLE II

PURCHASE AND SALE OF SHARES AND ASSETS

 

2.1 Sale of Acquired Assets . Upon the terms and subject to the conditions set forth in this Agreement, at the Closing, Seller shall, and shall cause its Subsidiaries to, sell, convey, transfer, assign and deliver to Buyer, and Buyer shall purchase or assume, as the case may be, from Seller or such Subsidiary all of the assets, rights, properties, claims, contracts and business of Seller and its Subsidiaries that are utilized primarily in the Business, of every kind, nature, character and description, tangible and intangible, real, personal or mixed, wherever located, including without limitation those assets listed on Schedule 2.1 hereto (collectively, the “ Acquired Assets “), other than the Excluded Assets described in Section 2.2 hereof. As of the Closing, risk of loss as to the Acquired Assets shall pass from Seller to Buyer.

 

2.2 Excluded Assets . It is expressly agreed that the Acquired Assets shall not include any of the following (the “ Excluded Assets ”):

 

(a) Non-Acquired Assets . Any assets utilized by Seller or its Subsidiaries primarily in connection with businesses other than the Business;

 

(b) Capital Stock . Any capital stock or other equity interests owned by Seller or its Subsidiaries other than the HTO Interests, including those partnership or limited liability company interests listed on Schedule 2.2(b) hereto;

 

(c) Cash and Cash Equivalents . Cash and cash equivalents, including, without limitation, bank deposits, investments in so-called “money market” funds, commercial paper funds, certificates of deposit, Treasury Bills and accrued interest thereon; in each case, other than cash set forth on the Statement of Net Assets; and

 

(d) Other Excluded Assets . Such other specific assets used in the Business as are listed on Schedule 2.2(d) hereto.

 

2.3 Assumed Liabilities . Upon the terms and subject to the conditions set forth in this Agreement, at the Closing, Buyer assumes and agrees to pay, perform and discharge when due, the following Liabilities, which shall be the “ Assumed Liabilities ”:

 

(a) all liabilities of HTO and the Partnerships to the extent reflected in the June 30, 2005 Balance Sheet included in the Statement of Net Assets and still in existence on the Closing Date;

 

(b) all Current Liabilities of HTO and the Partnerships of the nature presented on the Statement of Net Assets, which have arisen after June 30, 2005 in the Ordinary Course of Business (other than any Liability resulting from, arising out of, relating to, in the nature of, or caused by any breach of Contract, breach of warranty, tort, infringement, violation of Law, or environmental matter, including those arising under Environmental, health, and safety requirements); and

 

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(c) all obligations and liabilities, other than those that are Excluded Liabilities pursuant to Section 2.4(c), required to be performed or accruing after the Closing Date under the Transferred Contracts included in the Acquired Assets.

 

2.4 Excluded Liabilities . Notwithstanding anything to the contrary in this Agreement, Buyer shall not and does not assume any liabilities, debts or obligations of any nature of Seller (or any Affiliate of Seller), whether relating to the Business, the Acquired Assets or otherwise, other than the Assumed Liabilities (all such liabilities, debts or obligations other than the Assumed Liabilities are collectively referred to herein as the “ Excluded Liabilities ”). Excluded Liabilities include, without limitation, the following:

 

(a) all obligations and liabilities arising out of or relating primarily to the Excluded Assets;

 

(b) all debts, liabilities or obligations of Seller or its Subsidiaries other than as set forth in Section 2.3;

 

(c) all obligations and liabilities arising from or related to any breach of a Transferred Contract prior to the Closing Date other than as set forth in Section 2.3;

 

(d) all obligations and liabilities of Seller or its Subsidiaries for Taxes;

 

(e) all obligations and liabilities under any bond, note, debenture or similar instrument or any other indebtedness for borrowed money of Seller or its Subsidiaries outstanding prior to the Closing;

 

(f) all obligations and liabilities arising out of the conduct of operations of Seller and its Subsidiaries after the Closing;

 

(g) all obligations and liabilities arising out of those liabilities specifically set forth on Schedule 2.4(g) hereto;

 

(h) all obligations and liabilities (including accrued liabilities) for Taxes with respect to HTO, the Partnerships, the Business and the Acquired Assets for any Pre-Closing Tax Period;

 

(i) all obligations and liabilities relating to workers’ compensation claims with respect to occurrences prior to the Closing Date;

 

(j) all liabilities relating to or arising under or in connection with the matters described or otherwise required to be described in Schedule 3.10 hereto (without regard to the Material Adverse Effect qualification set forth in Section 3.10 or the limitation of such representation to the date hereof);

 

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(k) any obligation or liability related to any Intercompany Agreement that is not expressly included on Schedule 1.1(b) ;

 

(l) any obligation or liability arising from or related to the dissolution, merger, consolidation, restructuring, sale, transfer or assignment of interests or cessation of operations of any Subsidiary (including any such Subsidiary involved in the operation of the Business) or Partnership prior to the Closing Date;

 

(m) all obligations and liabilities arising out of or relating to Environmental Laws or Hazardous Materials to the extent arising out of or relating to any event or condition occurring or existing as of or prior to the Closing Date;

 

(n) all undisclosed obligations and liabilities under the ADA, ADEA, FMLA, Title VII, the WARN Act or any equivalent federal, state, local or foreign law with respect to any Seller Employees, but only to the extent and degree that the events giving rise to such obligations and liabilities occurred prior to the Closing Date;

 

(o) all obligations and liabilities arising out of or relating to Health Care Laws or Health Care Permits to the extent arising out of or relating to any event or condition occurring or existing as of or prior to the Closing Date;

 

(p) any liability under or relating to any Seller Plan, whether or not such liability or obligation arises prior to or after the Closing Date or any other liability relating to the employment or termination of employment of any (x) Person arising from or related to the operation of the Business prior to Closing or the transactions contemplated by this Agreement (including but not limited to, any severance or stay or incentive bonuses) or (y) Person who is not a Transferred Employee arising on or after the Closing;

 

(q) any other obligations and liabilities for which Seller has expressly assumed responsibility pursuant to this Agreement.

 

(r) all obligations and liabilities relating to product liability claims with respect to occurrences prior to the Closing Date;

 

(s) all obligations and liabilities relating to accrued vacation accruing prior to the Closing Date with respect to the Transferred Employees; and

 

(t) all obligations and liabilities relating to medical benefits accruing or with respect to occurrences prior to the Closing Date with respect to the Transferred Employees.

 

2.5 Transfer of Acquired Assets and Assumed Liabilities .

 

(a) The Acquired Assets shall be sold, conveyed, transferred, assigned and delivered, and the Assumed Liabilities shall be assumed, pursuant to transfer and assumption agreements and such other instruments in such form as may be necessary or appropriate to effect a conveyance of the Acquired Assets and an assumption of the Assumed Liabilities in the jurisdictions in which such transfers are to be made. Such transfer and

 

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assumption agreements shall include: (i) a bill of sale in substantially the form attached hereto as Exhibit A , (ii) an assignment and assumption agreement in substantially the form attached hereto as Exhibit B , and/or (iii) assignments in substantially the form attached hereto as Exhibit C (the “ Transferred Intellectual Property Assignments ”), with only such deviations therefrom as are required by local law or otherwise necessary to effectuate and record such transfer of the Transferred Intellectual Property or the recordation of the assignment of the Registered Intellectual Property therein, and (v) such other agreements as may be required to effect the purchase and assignment of the Acquired Assets and Assumed Liabilities (collectively, clauses (i)–(v), together with the Transition Services Agreement, the License Agreement, that certain Stockholders Agreement entered into as of the date hereof among Buyer, Seller, NightWatch Capital Partners, LP, NightWatch Capital Partners II, LP and Prides Capital Fund I, L.P. and any other agreement entered into as of the date hereof between Buyer and Seller, the “ Transaction Agreements ”) and shall be executed no later than at or as of the Closing by Seller and/or one or more of its Subsidiaries, as appropriate and Buyer.

 

(b) Subject to the terms of this Section 2.5(b), Seller agrees, and agrees to cause its Subsidiaries, to cooperate with Buyer and provide Buyer all assistance reasonably requested by Buyer in connection with the planning and implementation of the transfer of Acquired Assets or any portion of any of them to such location as Buyer shall designate. Acquired Assets shall be transported by or on behalf of Buyer, and until all of the Acquired Assets are removed from a Seller’s premises, Seller will, and will cause its Subsidiaries to, permit Buyer and its authorized agents or representatives, upon prior notice, to have reasonable access to such premises during normal business hours to the extent necessary to disconnect, detach, remove, package and crate the Acquired Assets for transport. Buyer shall be responsible for disconnecting and detaching all fixtures and equipment that are Acquired Assets from the floor, ceiling and walls of Seller’s premises so as to be freely removed from such premises by Buyer. Buyer shall be responsible for packaging and loading the Acquired Assets for transporting to and reinstalling the Acquired Assets at such location(s) as Buyer shall determine. All risk of loss as to the Acquired Assets shall be borne by, and shall pass to, Buyer as of the Closing.

 

2.6 Post-Closing Transfer of Acquired Assets . Notwithstanding anything to the contrary contained in this Agreement, to the extent that the sale, assignment, transfer, conveyance or delivery or attempted sale, assignment, transfer, conveyance or delivery to Buyer of any Acquired Asset is prohibited by any applicable law or would require any governmental or third-party authorizations, approvals, consents or waivers and such authorizations, approvals, consents or waivers shall not have been obtained prior to the Closing, this Agreement shall not constitute a sale, assignment, transfer, conveyance or delivery, or any attempted sale, assignment, transfer, conveyance or delivery thereof. Following the Closing, the parties shall use all reasonable best efforts, and cooperate with each other, to obtain promptly such authorizations, approvals, consents or waivers; provided , however , that neither Seller nor Buyer shall be required to pay any consideration therefor, other than filing, recordation or similar fees payable to any Governmental Authority; provided further , however , that all such fees payable in connection with obtaining such authorizations, approvals, consents or waivers shall be payable by Seller. Pending such authorization, approval, consent or waiver, the parties shall cooperate with each other in any reasonable and lawful arrangements at the sole expense of Seller, designed to provide to Buyer the benefits and liabilities of use of such Acquired Asset. Once

 

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such authorization, approval, consent or waiver for the sale, assignment, transfer, conveyance or delivery of an Acquired Asset not sold, assigned, transferred, conveyed or delivered at the Closing is obtained, Seller shall promptly assign, transfer, convey and delivery, or cause to be assigned, transferred, conveyed and delivered, such Acquired Asset to Buyer for no additional consideration and all reasonable expenses related thereto shall be payable by Seller. To the extent that any such Acquired Asset cannot be transferred promptly following the Closing or the full benefits and liabilities of use of any such Acquired Asset cannot be provided to Buyer following the Closing pursuant to this Section 2.6, then Buyer and Seller shall promptly enter into such arrangements (including subleasing or subcontracting if permitted) to provide to Buyer the economic (taking into account tax costs and benefits) and operational equivalent of obtaining such authorization, approval, consent or waiver and the performance by Buyer of the obligations thereunder, and all reasonable expenses incurred in connection with entering into such arrangements shall be payable by Seller.

 

2.7 Closing . Subject to the terms and conditions set forth in this Agreement, the consummation of the purchase and sale of the Acquired Assets and the other transactions contemplated by this Agreement (the “ Closing ”) shall take place on the date hereof (the “ Closing Date ”) at 10:00 a.m., Pacific time, at the offices of Simpson Thacher & Bartlett LLP, 3330 Hillview Avenue, Palo Alto, California 94304, unless another time and/or place is agreed to in writing by the parties to this Agreement.

 

2.8 Deliveries at the Closing .

 

At the Closing, subject to the terms and conditions set forth in this Agreement, (a) Seller shall, or shall cause its Subsidiaries (i) to, as appropriate, deliver to Buyer one or more certificates, conveyance agreements or other instruments, each duly executed and delivered, evidencing Buyer’s ownership of all of the HTO Interests, (ii) to execute and deliver to Buyer each of the Transaction Agreements and such other documents as counsel for Buyer and Seller mutually agree to be reasonably necessary to consummate the transactions described herein and (iii) to deliver to Buyer the partnership agreement for each of the Partnerships, and (b) Buyer shall execute and deliver to Seller each of the Transaction Agreements and shall pay to Seller in accordance with this Agreement the Initial Purchase Price for the Acquired Assets. To the extent that a form of any document, instrument, agreement or certificate to be delivered under this Agreement is not attached as an Exhibit to this Agreement, such document, instrument, agreement or certificate shall be in form and substance, and shall be executed and delivered in a manner, reasonably satisfactory to the parties to this Agreement.

 

2.9 Payment of Purchase Price . The aggregate purchase price in consideration of the transfer of the Acquired Assets pursuant to this Article II shall be (a) six million four hundred thousand dollars ($6,400,000) in cash; (b) a promissory note made in favor of Seller, in an aggregate original principal amount equal to two million dollars ($2,000,000) and in a form agreed upon by the parties hereto (the “ First Note ”); (c) a promissory note made in favor of Seller, in an aggregate original principal amount equal to two million dollars ($2,000,000) and in a form agreed upon by the parties hereto (the “ Second Note ”); and (d) stock certificates for shares (the “ Buyer Shares ”) of common stock, $0.01 par value per share, of Buyer (“ Common Stock ”), which Buyer Shares shall (i) be issued in the name of Seller or Seller’s designee, (ii) represent five and four hundred seventy four thousandths percent (5.474%) of the

 

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outstanding shares of Common Stock (on an as-converted, fully diluted basis) immediately following the Closing and (iii) be duly authorized and validly issued, fully paid and non-assessable (collectively, the “ Initial Purchase Price ”). Solely for the purpose of clarity, the Buyer Shares represent seven and one-half percent (7.5%) of the outstanding shares of Common Stock (on an as-converted, fully diluted basis) prior to the reduction of Seller’s percentage ownership of Buyer, as agreed by Buyer and Seller, in connection with certain payments by Buyer to Seller (for services rendered in the future and as part of the Initial Purchase Price paid hereunder) over and above five million dollars ($5,000,000). The Initial Purchase Price shall be subject to adjustment pursuant to Section 2.10 hereof (as finally adjusted pursuant to such sections, the “ Final Purchase Price ”). The Initial Purchase Price and all other cash consideration to be paid by Buyer under this Agreement shall be paid by Buyer by wire transfer of immediately available funds to such account or accounts as shall be designated in writing by Seller.

 

2.10 Working Capital Purchase Price Adjustment .

 

(a) Base Working Capital . For purposes of this Section 2.10 and any Net Working Capital adjustment to the Initial Purchase Price, the parties hereto agree that the amount set forth on Schedule 2.10(a) hereto (the “ Estimated Net Working Capital ”) represents the estimated Net Working Capital of HTO and the Partnerships, on a combined basis, as of June 30, 2005 calculated in accordance with GAAP and using the same accounting principles as used in preparing the balance sheet data in the Financial Statements. Estimated Working Capital plus $100,000 shall be the “ Base Working Capital .”

 

(b) Closing Balance Sheet . As soon as reasonably practicable following the Closing Date, and in any event within ninety (90) days thereafter, Buyer shall prepare and deliver to Seller a calculation of the Net Working Capital as of the Closing Date (the “ Closing Net Working Capital ”). The Closing Net Working Capital shall be prepared in accordance with GAAP and on a basis consistent with the preparation of the Estimated Net Working Capital set forth on Schedule 2.10(a) hereto and without regard to any purchase accounting adjustments.

 

(c) Disputes . Upon delivery of the Closing Balance Sheet, HTO and Buyer will provide to Seller and Seller’s accountants at Seller’s expense full access to the books and records of HTO and the Partnerships during reasonable business hours and to the extent required to review the calculation of the Closing Net Working Capital. If Seller disagrees with the calculation of the Closing Net Working Capital, it shall notify Buyer of such disagreement in writing within thirty (30) days after its receipt of the Closing Net Working Capital. In the event that HTO, the Partnerships and Buyer have provided full access as aforesaid and Seller does not provide such a notice of disagreement within such thirty (30) day period, Seller shall be deemed to have accepted the calculation of the Closing Net Working Capital delivered by Buyer, which shall be final, binding and conclusive for all purposes under this Agreement. In the event any such notice of disagreement is timely provided by Seller, Buyer and Seller shall use their reasonable best efforts for a period of ninety (90) days (or such longer period as they may mutually agree) to resolve any disagreements with respect to the calculation of the Closing Net Working Capital. If, at the end of such period, they are unable to resolve such disagreements, then an independent accounting firm of recognized national standing mutually selected by Seller and Buyer (the “ Accountants ”) shall resolve any remaining

 

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disagreements. The Accountants shall act as an expert and not as an arbitrator, and shall resolve the matters still in dispute and adjust and establish any disputed adjustment amount to reflect such resolution. If issues in dispute are submitted to the Accountants for resolution, (A) each party will furnish to the Accountants such workpapers and other documents and information relating to the disputed issues as the Accountants may reasonably request and are available to that party (or its independent public accountants), and will be afforded the reasonable opportunity to present to the Accountants any material relating to the determination and to discuss the determination with the Accountants. The Accountants shall determine as promptly as practicable, but in any event within ninety (90) days of the date on which such dispute is referred to the Accountants, based solely on written submissions forwarded by Buyer and Seller to the Accountants within thirty (30) days following the Accountants’ selection, whether the Closing Balance Sheet was prepared in accordance with the standards set forth in Section 2.10(b) and (only with respect to the remaining disagreements submitted to the Accountants) whether and to what extent (if any) the Closing Net Working Capital determination requires adjustment. All fees and expenses relating to the work, if any, to be performed by the Accountants shall be borne pro rata as between Buyer on the one hand and Seller on the other, in proportion to the allocation of the dollar amount of the amounts remaining in dispute between Buyer and Seller made by such Accountants such that the prevailing party pays the lesser proportion of fees and expenses. The determination of the Accountants shall be set forth in a written statement delivered to Buyer and Seller and shall be final, conclusive and binding on the parties. The date on which the Closing Net Working Capital is finally determined in accordance with this Section 2.10(c) is referred as to the “ Determination Date .”

 

(d) Payment . The “ Net Working Capital Adjustment Amount ,” which may be positive or negative, shall mean (i) the Closing Net Working Capital minus (ii) the Base Working Capital. If the Net Working Capital Adjustment Amount is greater than zero (such difference, the “ Increase Amount ”), then within five (5) days after the Determination Date, Buyer shall pay to Seller (by wire transfer to such account as Seller may designate in writing) an additional amount equal to the Increase Amount, together with interest thereon calculated from the Closing Date to the date of payment at the prime rate of interest, as announced by Citibank, N.A. in New York on the Closing Date (the “ Applicable Rate ”). If the Net Working Capital Adjustment Amount is less than zero (such absolute difference, the “ Deficit Amount ”), then within five (5) days after the Determination Date, Seller shall pay to Buyer an amount equal to the Deficit Amount, together with interest thereon calculated from the Closing Date to the date of payment at the Applicable Rate.

 

2.11 Purchase Price Allocation . Buyer and Seller agree to allocate and Seller agrees to cause its Subsidiaries, as applicable, to allocate the Final Purchase Price in accordance with the rules under Section 1060 of the Code and the Treasury Regulations promulgated thereunder. Buyer shall, within the later of (i) 120 days after the Closing Date, (ii) 30 days prior to the date by which Seller’s federal income Tax Returns must be filed, or (iii) 10 business days after there has been a final determination of the Purchase Price pursuant to Section 2.10 hereof, prepare and deliver to Seller for its consent (which consent shall not be unreasonably withheld, delayed or conditioned) a schedule allocating the Final Purchase Price (such schedule, the “ Allocation ”). If Seller raises any objection to the Allocation, the parties will negotiate in good faith to resolve such objection(s). Buyer and Seller agree to act (and cause Seller’s Subsidiaries, as applicable, to act) in accordance with the computations and allocations contained in the

 

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Allocation (including any modifications thereto reflecting any Net Working Capital Adjustment) in any relevant Tax returns or filings, including any forms or reports required to be filed pursuant to Section 1060 of the Code, the Treasury Regulations promulgated thereunder, or any provisions of local, state, and foreign, law (“ 1060 Forms ”), and to cooperate in the preparation of any 1060 Forms and to file such 1060 Forms in the manner required by applicable law.

 

ARTICLE III

REPRESENTATIONS AND WARRANTIES REGARDING SELLER, THE PARTNERSHIPS AND HTO

 

Seller represents and warrants to Buyer that the statements contained in this Article III are correct and complete as of the date hereof, except as set forth in the disclosure schedule delivered by Seller to Buyer prior to the date of the execution of the Agreement (the “ Disclosure Schedule ”):

 

3.1 Organization and Qualification .

 

(a) Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Georgia. Seller (i) has all requisite corporate power and authority to own, lease and operate the Acquired Assets being transferred hereunder and to carry on the Business as it is presently being conducted and (ii) is duly qualified to do business as a foreign person in each jurisdiction in which the nature of the Acquired Assets or the conduct of the Business requires it to be so qualified. Complete and correct copies of the Organizational Documents of Seller have been made available to Buyer.

 

(b) Each of HTO, each of the Partnerships and each of the Affiliates of Seller that is party to the other Transaction Agreements (such Affiliates, collectively, the “ Other Sellers ”) is a corporation, limited partnership or limited liability company duly organized, validly existing and in good standing under the laws of its jurisdiction of formation. Each of HTO, each Partnership and each of the Other Sellers (i) has all requisite corporate, partnership or limited liability company power and authority to own, lease and operate its properties and assets and to carry on its business as it is presently being conducted and (ii) is duly qualified to do business as a foreign person in each jurisdiction in which the nature of the property owned or leased by it or the conduct of its business requires it to be so qualified. Complete and correct copies of the Organizational Documents of HTO, each Partnership and each Other Seller have been made available to Buyer.

 

3.2 Capitalization of HTO and the Partnerships . The equity capitalization of HTO and the Partnerships (including the identity of each equity holder and the partnership interest held thereby) is set forth in Schedule 3.2 hereto. All of the issued and outstanding HTO Interests and Partnership Interests are beneficially owned solely by Seller or its Subsidiaries as set forth on Schedule 3.2 hereto. The HTO Interests and each of the Partnership Interests have not been issued in violation of any preemptive rights and are free and clear of any Encumbrances. At the Closing, Buyer will acquire good and valid title to the HTO Interests, free and clear of all Encumbrances incurred by Buyer or its Affiliates. Other than as set forth in Schedule 3.2 hereto, neither HTO nor any Partnership owns or holds, directly or indirectly, any equity interest of any kind in any Person.

 

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(a) Except for this Agreement and the other Transaction Agreements and the transactions contemplated hereby and thereby, there are no outstanding (i) agreements, arrangements, warrants, options, puts, calls, rights, subscriptions or other commitments to which HTO or any Partnership is a party relating to the sale, issuance or voting of any partnership interests of HTO or such Partnership, or (ii) securities or other instruments convertible into, exchangeable for or evidencing the right to purchase any limited liability company or partnership interests, as applicable, of HTO or such Partnership.

 

3.3 Corporate Books and Records . The minute books of HTO and each Partnership contain accurate records of all meetings and accurately reflect all other actions taken by the members or partners of HTO or of such Partnership. Complete and accurate copies of all such minute books and of the record of limited liability company or partnership interests, as applicable, of HTO and each Partnership have been provided by Seller to Buyer.

 

3.4 Authorization; Enforceability . Seller and each Other Seller (as the case may be) has all requisite corporate, partnership or limited liability company power and authority, and has taken all corporate or other similar action necessary, in order to execute and deliver this Agreement, the other Transaction Agreements and the other instruments contemplated hereby and thereby, to perform its obligations under this Agreement and the other Transaction Agreements and, subject to the conditions set forth in this Agreement and the other Transaction Agreements, to consummate the transactions contemplated hereby and thereby. The execution, delivery and performance of this Agreement and the other Transaction Agreements by Seller and each Other Seller have been duly authorized by all requisite corporate or other similar action on behalf of Seller and each Other Seller, as applicable. This Agreement has been, and the other Transaction Agreements will be upon execution and delivery by Seller and each Other Seller, duly executed and delivered by Seller and each Other Seller and, assuming the due authorization, execution and delivery of this Agreement and the other Transaction Agreements to which Buyer is a party, constitute or will constitute the legal, valid and binding obligations of Seller and each Other Seller, enforceable against Seller and each Other Seller in accordance with their terms subject to (a) the effect of any applicable bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditors’ rights and remedies generally, and (b) the effect of general equitable principles, regardless of whether asserted in a proceeding in equity or at law.

 

3.5 No Conflict or Violation . The execution, delivery and performance by Seller and each Other Seller of this Agreement and the other Transaction Agreements and the consummation by Seller and each Other Seller of the transactions contemplated hereby and thereby, and compliance by Seller and each Other Seller with, or fulfillment by Seller and each Other Seller of, the terms, conditions and provisions of this Agreement and of the other Transaction Agreements, do not and will not: (a) violate, conflict with or result in the breach of any provision of the Organizational Documents of Seller, any Other Seller, HTO or any Partnership; (b) except as set forth on Schedule 3.5 hereto, violate, conflict with or constitute or result in (or with notice, lapse of time or both become) a default or a breach under, require any consent under or result in the acceleration, termination, amendment, suspension, revocation or cancellation of (or entitle any Person or give any Person the right to accelerate, terminate, amend, suspend, revoke or cancel), or result in the creation of any Encumbrance on the Interests or on any of the assets or properties of HTO or any Partnership pursuant to, any Contract to

 

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which Seller, HTO or any Partnership is a party or by which any of the Interests or any of such assets or properties is bound, except, in the case of clause (b) above, for any such matters or consequences that would not reasonably be expected, individually or in the aggregate, to materially adversely affect, restrict or delay the ability of Seller or any Other Seller to consummate the transactions contemplated by this Agreement and the other Transaction Agreements.

 

3.6 Consents and Approvals . Except as would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect or to materially adversely affect, restrict or delay the ability of Seller or any Other Seller to consummate the transactions contemplated by this Agreement and the other Transaction Agreements, and except as set forth on Schedule 3.6 hereto, the execution, delivery and performance by Seller and each Other Seller of this Agreement and the other Transaction Agreements, and the consummation by Seller and each Other Seller of the transactions contemplated hereby and thereby, do not and will not require the approval, consent, authorization or other order of, or action by, or the making by Seller, HTO, any Other Seller or any Partnership or any other Person of any declaration, filing or registration with, or notification to, any Governmental Authority.

 

3.7 Financial Statements .

 

(a) True and complete copies of (i) the unaudited balance sheet of HTO and each Partnership as of December 31, 2003 and 2004 and as of March 31, 2003, 2004 and 2005, June 30, 2003, 2004 and 2005, and September 30, 2003 and 2004, and (ii) the related unaudited income statement for each of the fiscal quarters ended March 31, 2003, 2004 and 2005, June 30, 2003, 2004 and 2005, September 30, 2003 and 2004 and December 31, 2003 and 2004, and (iii) the statement of net assets of each of the Partnerships and HTO (on a combined basis) as of June 30, 2005 (the “ Statement of Net Assets ”), (collectively, the “ Financial Statements ”), are attached hereto as Schedule 3.7(a) to this Agreement. The Financial Statements have been prepared in accordance with GAAP, applied on a consistent basis throughout the periods covered by such Financial Statements. The Financial Statements fairly present in accordance with GAAP, in all material respects, the financial condition of HTO and each of the Partnerships and the results of their operations, in each case, as of the dates of such Financial Statements for the periods referred to in such Financial Statements.

 

(b) All accounts receivable of HTO and each of the Partnerships reflected in the June 30, 2005 Statement of Net Assets included in the Financial Statements or arising since June 30, 2005 have arisen in the Ordinary Course of Business of HTO and the Partnerships from bona fide transactions and represent valid obligations due to the operations of HTO and the Partnerships in accordance with their terms and are not subject to discount except for immaterial trade discounts consistent with past practice and contractual allowances and reserves reflected on the Financial Statements. The values at which the accounts receivable are carried on the Financial Statements reflect the accounts receivable consistent with GAAP.

 

3.8 Absence of Certain Changes or Events . Since December 31, 2004, except as set forth in Schedule 3.8 hereto or as disclosed in any of the Financial Statements, (a) HTO and the Partnerships have operated only in the Ordinary Course of Business, and (b) there have not been any changes in the Business or results of operations of HTO or the

 

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Partnerships or any other events, conditions or circumstances that have, or would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. In addition, since December 31, 2004 and through the date hereof (a) neither HTO nor any Partnership has sold, assigned, transferred, leased, licensed or disposed of any of its material assets or properties and neither Seller nor any of its Subsidiaries has taken any such action with respect to the Acquired Assets other than the sale of inventory and obsolete or worn-out equipment, in each case in the Ordinary Course of Business; (b) neither HTO nor any Partnership has made any acquisition of any Person or other business organization or division thereof; (c) neither HTO nor any Partnership has subjected any of its assets to any Encumbrance and neither Seller nor any of its Subsidiaries has taken any such action with respect to the Acquired Assets, except for Permitted Encumbrances; (d) neither HTO nor any Partnership has amended or authorized any amendment to its Organizational Documents; (e) neither HTO nor any Partnership has materially changed