STOCK PURCHASE AGREEMENT

Exhibit 10.1

 

 

STOCK PURCHASE AGREEMENT

 

between

 

RENTECH, INC.,

 

as Seller,

 

and

 

ZINSSER CO., INC.,

 

as Buyer,

 

Dated as of March 8, 2005

 

TABLE OF CONTENTS

 

 

EXHIBIT

 

 

SCHEDULES

 

 

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THIS STOCK PURCHASE AGREEMENT is made on March 8, 2005, between Rentech, Inc., a Colorado corporation (“Seller”), and Zinsser Co., Inc., a New Jersey corporation (“Buyer”).

 

Recitals

 

Seller owns all of the issued and outstanding stock of Okon, Inc., a Colorado corporation (the “Company”). Seller has agreed to sell all of the stock of the Company to Buyer on the terms and conditions set forth in this Agreement.

 

Agreement

 

Accordingly, in consideration of the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller and the Buyer agree as follows:

 

SECTION 1

DEFINITIONS

 

1.1. Certain Defined Terms . As used in this Agreement, the following terms have the indicated meanings:

 

“Adverse Consequences” means all actions, suits, proceedings, investigations, complaints, claims, demands, orders, decrees, rulings, injunctions, judgments, directives, notices of violation, Liabilities, liens, losses, damages, penalties, fines, settlements, costs, expenses and fees (including court costs and reasonable fees and expenses of counsel and other experts).

 

“Affiliate” means, as to any Person, another Person that controls, is controlled by or is under common control with such Person. For that purpose, “control” means the power, directly or indirectly, by stock ownership, contract, family relationship, employment, position or otherwise, to significantly influence the business decisions of another Person.

 

“Benefit Arrangement” means any written or oral employment, consulting, bonus, noncompetition, management, agency, change of control, severance, layoff, salary continuation, deferred compensation, profit sharing, bonus, stock option, phantom stock, stock appreciation right, stock purchase, employee loan, allowance or reimbursement, or other similar contract or policy, supplemental unemployment benefits, vacation benefits, retirement benefits, life, health, dental, vision, disability or accident benefits, fringe benefit plans, arrangements or practices, and each plan, arrangement, understanding or program which provides for insurance coverage (including any self insured arrangements) or other forms of compensation or insurance (including, without limitation, post-retirement insurance), compensation or benefits, which is not a Welfare Plan, a Pension Plan or a Multiemployer Plan.

 

“Business Assets” means all assets, properties and rights owned by the Company or used by the Company in the conduct of its business, tangible or intangible, real or personal.

 

“Buyer” has the meaning given in the Preamble.

“Claim” has the meaning given in Section 6.6.

 

“Closing” has the meaning given in Section 2.8.

 

“Closing Date” has the meaning given in Section 2.8.

 

“Closing Date Working Capital” means the excess of (i) the sum of the Company’s accounts receivable (net of any allowance for doubtful accounts) plus its inventory over (ii) the sum of the Company’s accounts payable plus its accrued liabilities (including accrued salary, vacation and sick pay, but excluding any accrued liabilities relating to any Company Pension Plan or Company Welfare Plan and excluding any liabilities for federal income Taxes or state Taxes in which Company and Seller file Tax returns on a combined basis, all of which Taxes will be paid by Seller), in each case, as of the Closing Date and determined in accordance with GAAP, excluding any receivables from and payables or liabilities to Seller.

 

“COBRA” means Section 4980B of the Code and Sections 601 through 608, inclusive, of ERISA, and any regulations or rulings promulgated thereunder.

 

“Code” means the United States Internal Revenue Code of 1986, as amended, and the regulations and rulings promulgated thereunder.

 

“Company” has the meaning given in the Recitals.

 

“Company Benefit Arrangement” means any Benefit Arrangement which provides coverage or benefits to any employee or former employee of the Company with respect to his or her relationship with the Company.

 

“Company Employee Plans” means all Employee Plans which provide coverage or benefits to any employee or former employee of the Company with respect to his or her relationship with the Company.

 

“Company Pension Plan” means any Pension Plan which provides coverage or benefits to any employee or former employee of the Company with respect to his or her relationship with the Company.

 

“Company Welfare Plan” means any Welfare Plan which provides coverage or benefits to any employee or former employee of the Company with respect to his or her relationship with the Company.

 

“Contracts” has the meaning given in Section 3.5.7.

 

“Disposal” means disposal as defined by RCRA or as defined by any applicable similar law of any jurisdiction where the Company has operated its business or Released Hazardous Substances. However, “Disposal,” as used herein, shall not be limited to the disposal of Hazardous Wastes, as defined in RCRA, but shall extend to the disposal of any Hazardous Substance, as defined herein.

 

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“Employee Plans” shall mean all Benefit Arrangements, Multiemployer Plans, Pension Plans and Welfare Plans.

 

“Encumbrance” means any interest in an asset securing performance of an obligation, any adverse claim of title to or the right to possession or use of an asset and any option or other right to acquire title to or the right to possession or use of an asset.

 

“Environmental Law” means all currently effective statutes, ordinances, codes, common law principles, rules, regulations, orders, decrees, standards, procedures, permit or license requirements or other requirements of any governmental authority relating to land use, public or employee health, safety, welfare or the environment, including, without limitation: the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. § 9601, et seq. (“CERCLA”); RCRA; the Emergency Planning and Community Right-to-Know Act, 42 U.S.C. § 11001, et seq. ; the Hazardous Materials Transportation Act, 49 U.S.C. § 5101, et seq .; the Clean Air Act, 42 U.S.C. § 7401 , et seq. ; the Clean Water Act, 33 U.S.C. § 1251, et seq. ; the Occupational Safety and Health Act, 29 U.S.C. § 651, et seq .; the Toxic Substances Control Act, 15 U.S.C. § 2601, et seq. (“TSCA”); the Rivers and Harbors Act of 1899, 33 U.S.C. § 401, et seq. ; the Oil Pollution Act of 1990, 33 U.S.C. § 2701, et seq ., the California State Drinking Water and Toxic Enforcement Act of 1986 (“Proposition 65”); and regulations adopted by the South Coast Air Quality Management District, each as amended; any state or local law similar to the foregoing; all policy and guidance documents and memoranda issued pursuant to the foregoing with which the Company is required to comply under applicable law; and all permits issued to the Company pursuant to the foregoing; in each case, where and as applicable to the Company, its products or operations.

 

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

 

“ERISA Affiliate” means any entity which is a member of a “controlled group of corporations” with, under “common control” with, or otherwise treated as a single employer or aggregated with, the Company, pursuant to Section 414 of the Code.

 

“Financial Statements” has the meaning given in Section 3.4.1.

 

“GAAP” has the meaning given in Section 3.4.1.

 

“Hazardous Substance” means any pollutant, contaminant, toxic or hazardous material, substance, chemical, compound or mixture that is defined, listed, classified or regulated by any Environmental Law, including, without limitation: petroleum (including, without limitation, crude oil or any fraction thereof), gasoline, diesel fuel or other petroleum hydrocarbons; polychlorinated biphenyls; and asbestos, in each case, whether specifically listed or designated as a hazardous substance under any Environmental Law.

 

“Hazardous Waste” shall have the meaning given under RCRA and any similar state statutes and any regulations adopted pursuant thereto.

 

“Indemnifying Party” has the meaning given in Section 6.6.

 

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“Indemnitee” has the meaning given in Section 6.6.

 

“Initial Payment” has the meaning given in Section 2.2.

 

“Liability” means any liability, debt or obligation, whether known or unknown, absolute or contingent, arising under contract, in tort, by statute or regulation or otherwise, accrued or unaccrued, liquidated or unliquidated and due or to become due, and whether for the payment of money, the provision of goods or services or the performance of any other obligation.

 

“Multiemployer Pension Plan” shall mean any “employee pension benefit plan” (as such term is defined in Section 3(2) of ERISA) that is a “multiemployer plan” (as such term is defined in Section 4001(a)(3) of ERISA).

 

“Multiemployer Plan” shall mean Multiemployer Pension Plan, Multiemployer Welfare Plan or both.

 

“Multiemployer Welfare Plan” shall mean any “employee welfare benefit plan” (as such term is defined in Section 3(1) of ERISA) that is a “multiemployer plan” (as such term is defined in Section 3(37) of ERISA.

 

“Okon Products” means all products sold by the Company or any Affiliate of the Company after the Closing that are either labeled with the name Okon (or any other trade name or trademark of the Company) or are based upon formulations included in the Business Assets.

 

“PBGC” means the Pension Benefit Guaranty Corporation or any person succeeding to the present powers and functions of the Pension Benefit Guaranty Corporation.

 

“Pension Plan” means any “employee pension benefit plan” (as such terms is defined in Section 3(1) of ERISA), other than a Multiemployer Pension Plan.

 

“Person” means an individual and any corporation, partnership, trust, limited liability company, association, governmental authority or any other entity.

 

“Premises” means the real property occupied by Company at 4725 Leyden Street, Denver, Colorado 80216.

 

“Premises Lease” means the Lease between CSM Investors, Inc., as lessor, and the Company, as lessee, dated February 28, 2000, as amended by the First Amendment of Lease and Reaffirmation of Guaranty dated April 15, 2004, pursuant to which the Company leases the Premises.

 

“Purchase Price” has the meaning given in Section 2.2.

 

“RCRA” means the Resource Conservation and Recovery Act of 1976, as amended, and as codified in the Solid Waste Disposal Act, 42 U.S.C. § 6901, et seq ., as amended. All references to RCRA in this Agreement incorporate all regulations at 40 C.F.R. Part 260, et seq ., promulgated pursuant to RCRA as well as all state statutes or regulations adopted pursuant to RCRA.

 

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“Release” means any direct or indirect spilling, pumping, pouring, emitting, emptying, placing, discharging, injecting, escaping, leaking, dumping, disposing, leaching or abandonment on or into any building or facility or the environment, whether intentional or unintentional, known or unknown.

 

“Seller” has the meaning given in the Preamble.

 

“Storage” means storage as defined by RCRA or as defined by any applicable similar law of any jurisdiction where the Company has operated its business or Released Hazardous Substances, provided, however, that the term “Storage” as used herein shall not be limited to the storage of Hazardous Wastes, as defined in RCRA, but shall extend to the storage of any Hazardous Substance.

 

“Tax” means any federal, state or local tax or any foreign tax (including, without limitation, any net income, gross income, profits, premium, estimated, excise, sales, value added, services, use, occupancy, gross receipts, franchise, license, ad valorem, severance, capital levy, production, stamp, transfer, withholding, employment, unemployment, social security (including FICA), payroll or property tax, customs duty, or any other governmental charge or assessment), together with any interest, addition to tax or penalty.

 

“Tax Return” means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.

 

“Third Party” means a Person other than Seller or an Affiliate of the Company or Seller.

 

“Transaction Agreements” means this Agreement and all other instruments and agreements executed and delivered pursuant to this Agreement.

 

“Transport” means transport as defined by RCRA or as defined by any applicable similar law of any jurisdiction where the Company has operated its business or Released Hazardous Substances, provided, however, that the term “Transport” as used herein shall not be limited to the transport of Hazardous Wastes, as defined in RCRA, but shall extend to the transport of any Hazardous Substance, as defined herein.

 

“Treatment” means treatment as defined by RCRA or as defined by any applicable similar law of any jurisdiction where the Company has operated its business or Released Hazardous Substances, provided, however, that the term “Treatment” as used herein shall not be limited to the treatment of Hazardous Wastes, as defined in RCRA, but shall extend to the treatment of any Hazardous Substance, as defined herein.

 

“Welfare Plan” means any “employee welfare benefit plan” (as such term is defined in Section 3(1) of ERISA), other than a Multiemployer Plan.

 

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SECTION 2

PURCHASE AND SALE OF STOCK

 

2.1. Basic Agreement. Seller hereby sells to Buyer, and Buyer hereby purchases from Seller, all of the issued and outstanding capital stock of the Company (the “Stock”).

 

2.2. Purchase Price. The aggregate purchase price (the “Purchase Price”) to be paid by Buyer to Seller for the Stock shall be (i) $1,700,000, subject to adjustment pursuant to Section 2.5, payable by wire contemporaneously with the execution of this Agreement (and, if applicable, thereafter as provided in Section 2.5) to an account designated by Seller (the “Initial Payment”) plus (ii) the earn out payments that become due under Section 2.3, payable as provided therein.

 

2.3. Earn Out. Buyer shall pay Seller an earn out equal to 7% of net sales ( i.e. , gross sales less returns) of Okon Products by the Company or any Affiliate of the Company after the Closing until a total of $300,000 has been paid to Seller. After $300,000 in earn out payments has been paid, no further earn out payments shall be due. Earn out payments shall be payable monthly within 15 days after the end of each calendar month in respect of net sales during that month. Each earn out payment shall be accompanied by a statement reflecting in reasonable detail the calculation of the amount of the payment. Seller shall have the right to examine and audit the sales records of the Company not more than twice annually to verify the earn out payments due.

 

2.4. Assets to be Retained by Seller. Prior to the execution and delivery of this Agreement, Seller caused the Company to distribute to Seller all cash of the Company and all inter-company receivables owing to the Company from Seller. All inter-company payables owing to Seller from the Company are hereby cancelled.

 

2.5. Adjustment for Working Capital. Within 60 days after the Closing Date, Buyer shall provide Seller with a balance sheet of the Company as of the Closing Date, prepared in accordance with GAAP, accompanied by Buyer’s calculation of the Closing Date Working Capital based on that balance sheet. Buyer’s calculations of Closing Date Working Capital shall be binding on the parties unless, within 15 days after its receipt of such calculation from Buyer, Seller gives Buyer notice that Seller disagrees with Closing Date Working Capital as calculated by Buyer. If Seller gives such a notice, then Buyer and Seller shall attempt in good faith to resolve the disagreement and agree upon Closing Date Working Capital. Buyer shall provide Seller access to the books and records of the Company for purposes of attempting to resolve the disagreement. If they are unable to agree within 30 days after Seller’s notice, either party may elect to refer the matter to the Denver office of Hein + Associates (or such other independent accounting firm as the parties may agree upon) for resolution, and the determination of that firm shall be binding on the parties. Each party may provide the independent accounting firm with such information as it deems appropriate and Buyer shall provide the independent accounting firm with access to the books and records of the Company, as necessary to determine the Closing Date Working Capital. The fees and expenses of the independent accounting firm shall be shared equally by the parties. The independent accounting firm shall provide Seller and Buyer with a written statement of its calculation of actual Closing Date Working Capital. If

 

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actual Closing Date Working Capital as finally determined is less than $220,000, within 5 days after such final determination, Seller shall pay Buyer the amount of said shortfall. Any such payment shall be first by set off against amounts due Seller pursuant to Section 2.3. If actual Closing Date Working Capital as finally determined is equal to or greater than $220,000, no purchase price refund or further purchase price payment shall be paid.

 

2.6. Section 338(h)(10) Election. At the Closing, Seller and Buyer shall jointly make an election under section 338(h)(10) of the Code and any similar provision of any state or local tax law. For that purpose, the Purchase Price shall be allocated among the Business Assets as agreed by the parties within 60 days after the Closing Date.

 

2.7. Lease Guaranty. At the Closing, Buyer shall execute a guaranty of the Premises Lease in a form substantially similar to the existing guaranty signed by Seller and Seller shall be released from its guaranty of the Premises Lease, but only with respect to the Company’s performance after the Closing.

 

2.8. Closing. The closing of the transactions contemplated by this Agreement (the “Closing”) is being held at the offices of Sherman & Howard L.L.C., 633 Seventeenth Street, Suite 3000, Denver, Colorado 80202 contemporaneously with the execution of this Agreement, and shall be effective as of 12:00 a.m. local time in Denver, Colorado on the date of this Agreement (such effective time being the “Closing Date”).

 

SECTION 3

REPRESENTATIONS AND WARRANTIES OF SELLER

 

Seller represents and warrants to Buyer as follows:

 

3.1. The Company.

 

3.1.1. Organization and Standing . The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Colorado. The Company is not required to be qualified to do business as a foreign corporation in any jurisdiction. The Company has the requisite corporate power and authority to own its assets and carry on its business as presently being conducted. Complete and correct copies of the charter, bylaws, minute books and stock records of the Company current as of the date of this Agreement have been delivered to Buyer.

 

3.1.2. Subsidiaries . The Company does not own, directly or indirectly, any capital stock, any partnership, equity or other ownership interest in or any security issued by any other Person.

 

3.1.3. Capitalization . The authorized capital stock of the Company consists of 100 shares of Common Stock, no par value, of which 100 shares are issued and outstanding. All of the Stock is duly authorized, validly issued, fully paid and nonassessable and is owned of record and beneficially by Seller, free and clear of Encumbrances. There are no outstanding options, warrants, convertible securities or other rights to acquire any of the Stock from Seller or any other capital stock or security from the Company. The Stock was not issued in violation of any preemptive or similar right of any Person and has not been transferred in violation of, and is not currently subject to, any right of first refusal or similar right of any Person. The Stock is not subject to any voting trust or other voting agreement.

 

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3.2. The Transaction Agreements.

 

3.2.1. Execution and Validity . This Agreement and each of the other Transaction Agreements to which Seller is a party have been duly executed and delivered by Seller and constitute the legal, valid and binding obligations of Seller, enforceable in accordance with their terms, subject to bankruptcy, insolvency, moratorium, reorganization and similar laws of general applicability affecting the rights and remedies of creditors and to general principles of equity, regardless of whether enforcement is sought in proceedings in equity or at law.

 

3.2.2. No Violation or Approval . The execution, delivery and performance by Seller of the Transaction Agreements and the consummation of the transactions contemplated by the Transaction Agreements do not and will not constitute or result in (i) a violation of any order, judgment or decree of any court or governmental agency or body having jurisdiction over Seller, the Company or any of the Business Assets, or (ii) except as disclosed on Schedule 3.2.2 , a breach of or default under, or the acceleration of any obligation or creation of any Encumbrance under (whether immediately, upon the passage of time or after the giving of notice), or otherwise require a consent or waiver under, any agreement, instrument, lease, contract, mortgage, deed or license to which Seller or the Company is a party or by which Seller or the Company or any of their assets are bound or affected or (iii) a violation of or a conflict with the charter or bylaws of the Company. Except as disclosed on Schedule 3.2.2 , no notice to, or consent, approval, order or authorization of, or declaration or filing with, any governmental authority or entity or other Person is required to be obtained or made by Seller or the Company in connection with the execution, delivery and performance of or the consummation of the transactions contemplated by any of the Transaction Agreements.

 

3.3. The Business Assets.

 

3.3.1. Description . The Business Assets and the Premises constitute all of the assets, properties and rights used by the Company to conduct its business and necessary to conduct the Company’s business as currently conducted. Schedule 3.3.1 is a true and complete description of all material Business Assets, including a list of all material tangible Business Assets. The Business Assets include all of the assets reflected on the Company’s balance sheet as of February 28, 2005 included in the Financial Statements and all assets acquired in the ordinary course of business since that date, except (i) assets sold or used in the ordinary course of business since that date, (ii) the assets retained by Seller pursuant to Section 2.4 and (iii) any prepaid expenses relating to insurance or employee benefit programs, which are managed on a consolidated basis for Seller and its subsidiaries and will not be available to the Company following the Closing.

 

3.3.2. Title . The Company has good and marketable title to all of the Business Assets, free and clear of Encumbrances except (a) Encumbrances securing current Taxes not yet due and payable and (b) Encumbrances set forth in Schedule 3.3.2 .

 

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3.3.3. Intellectual Property . Schedule 3.3.3 is a list of the trademarks that the Company currently has registered with the United States Patent and Trademark Office. None of such trademarks infringes the intellectual property rights of any other Person. To the knowledge of Seller, no other Person is infringing the rights of the Company with respect to such trademarks. The Company’s manufacture, use, performance or sale of products or services has not violated or infringed on any intellectual property rights of any Person. The Company’s operations have not otherwise infringed on the intellectual property right of any Person.

 

3.4. Financial Matters.

 

3.4.1. Financial Statements . Attached to this Agreement as Exhibit A are the unaudited balance sheet of the Company as of February 28, 2005 (the “Interim Balance Sheet”) and the related unaudited statements of income, shareholders’ equity and cash flows for the three months then ended and the unaudited balance sheets of the Company as of September 30, 2002, 2003 and 2004 and the related unaudited statements of income, shareholders’ equity and cash flows for the fiscal years then ended (collectively, the “Financial Statements”). The Financial Statements were prepared from the books and records of the Company, which are correct and complete. The Financial Statements present fairly the financial position of the Company and the results of its operations as of the respective dates and for the periods presented therein and have been prepared in accordance with generally accepted accounting principles consistently applied (“GAAP”), except that they do not include a statement of cash flows or the notes required by GAAP.

 

3.4.2. No Undisclosed Liabilities . The Company has no Liabilities except (i) as set forth in the Interim Balance Sheet, (ii) as disclosed on Schedule 3.4.2 , (ii) accounts payable, accrued salary, vacation and sick pay arising in the ordinary course of business since the date of the Interim Balance Sheet; (iii) performance obligations (other than any Liability arising out of or relating to any breach that occurred prior to the Closing) under the express terms of the Premises Lease or any Contract listed on Schedule 3.5.7 , (iv) warranty obligations under the terms of the warranties included on Schedule 3.5.5 ; (v) current obligations to purchase and sell products or services under any purchase and sale orders entered into by the Company in the ordinary course of business; or (vi) the obligation to comply with applicable law in the ordinary course of business, first required to be performed after the Closing and not arising in connection with (A) any act, fact, or condition giving rise to a breach of any representation or warranty of Seller herein, or (B) any act or omission of Company or the Seller prior to the Closing.

 

3.4.3. Absence of Changes . Since February 28, 2005 the Company has not undergone any material adverse change in its business, assets, liabilities, financial condition, operating performance, or suffered any material damage, destruction or loss (whether or not covered by insurance), and to Seller’s knowledge, no event has occurred or circumstance exists that could reasonably be expected to result in such a material adverse change. Since February 28, 2005, the Company has operated only in the ordinary course of business, consistent with historical practice. Without limiting the generality of the foregoing, since February 28, 2005, the Company has not:

 

(a) increased or experienced any material adverse change in any assumption underlying any method of calculating bad debts, contingencies or other reserves from that reflected in the Financial Statements;

 

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(b) cancelled, compromised, written down, written off or waived any claim or right of having a value in excess of $10,000;

 

(c) sold, transferred, distributed or otherwise disposed of any of its material assets except for sales of merchandise in the ordinary course of business and sales or other dispositions of raw materials, inventory and equipment no longer needed for its operation in the ordinary course of business and distributions pursuant to Section 2.4;

 

(d) made any capital expenditure or commitment for additions to property, plant or equipment having an aggregate cost in excess of $10,000;

 

(e) made or agreed to make any increase in the compensation payable or benefits provided to any of the officers, directors, employees or consultants of the Company, except for salary increases in the ordinary course of business;

 

(f) entered into, amended or modified any Company or Seller Employee Plan, except in the ordinary course of business and consistent with past practice

 

(g) entered into any transaction or contract, or amended or terminated any transaction or contract, with respect to the business of the Company, except normal transactions or contracts entered into in the ordinary course of business in arm’s-length transactions;

 

(h) terminated or been advised of the termination of or material reduction in its relationship with any material customer or supplier;

 

(i) changed in any material respect the business policies, methods of accounting or practices of the Company; or

 

(j) agreed, whether in writing or not, to do any of the foregoing.

 

3.4.4. Taxes . During the period that Seller has owned the Company, the Company has been part of Seller’s affiliated group filing consolidated income Tax Returns for federal and, where applicable, state income Tax purposes. All required Tax Returns relating to the Company have been filed. All such Tax Returns were correct and complete in all material respects. All Taxes owed by the Company in respect of its operation that have become due prior to the Closing Date have been paid. The Company has not waived any statutes of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency, other than waivers or extensions relating to the consolidated income tax returns of Seller’s affiliated group. The Company has not received notice from a taxing authority in a jurisdiction where it does not file Tax Returns that it may be subject to taxation by that jurisdiction. All Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee of the Company have been withheld and paid. The Company has not been a “distributing corporation” or a “controlled corporation” within the meaning of section 355(e) of the Code within the last two years. Seller and the Company are part of a “selling consolidated group” as defined in section 338(h)(10) of the Code.

 

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3.5. Operational Matters.

 

3.5.1. Suppliers . Schedule 3.5.1 lists the top twenty (dollar value) suppliers or subcontractors from which the Company purchased goods or services in any of the fiscal years ended September 30, 2004 and 2003. Schedule 3.5.1 lists each supplier which is the Company’s sole source of supply for any product. The Company has no knowledge that any such supplier or subcontractor intends to discontinue, materially reduce delivery of any goods or services, default under or terminate any agreement with the Company or modify the terms of its sales to the Company within the next twelve months.

 

3.5.2. Customers . Schedule 3.5.2 lists all customers to which the Company sold goods or services in any of the fiscal years ended September 30, 2004 and 2003. The Company has no knowledge that any such customer intends to discontinue or to materially reduce purchases of such goods or services or default under or terminate any agreement with the Company within the next twelve months. Except as accrued for the purpose of determining the Closing Date Net Working Capital, the Company has not received any prepayments or deposits from customers for products to be shipped or services to be performed in the future.

 

3.5.3. Compliance With Law . The Company is, and at all times been, in compliance with applicable law in all material respects. The Company has not received notice of any allegations or inquires concerning any violations of law relating to the Company, the Premises or any facility or property currently or formerly owned, occupied or used by the Company, the Company’s operations or the Business Assets.

 

3.5.4. Litigation . Except as disclosed in Schedule 3.5.4 , there are no actions, claims, suits, audits, examinations, investigations or proceedings pending or to Seller’s knowledge threatened against the Company, whether by a pri