Exhibit 2.1
ASSET PURCHASE
AGREEMENT
between
OURPET’S
COMPANY
(BUYER)
and
PET ZONE PRODUCTS
LTD.
(SELLER)
January 3, 2006
ASSET PURCHASE
AGREEMENT
THIS ASSET PURCHASE
AGREEMENT (“
Agreement ”) dated as of January 3, 2006 (“
Effective Date ”), by and between OurPet’s
Company, a Colorado corporation (“ Buyer ”), and
Pet Zone Products Ltd., an Ohio limited liability company (“
Seller ”).
RECITALS:
WHEREAS , Seller and Buyer desire to enter into this
Agreement pursuant to which Seller will sell, transfer, convey,
assign and deliver to Buyer and Buyer will buy, acquire, receive
and accept from Seller certain assets and liabilities of
Seller;
NOW, THEREFORE
, in consideration of the respective
representations, warranties, covenants, agreements and conditions
contained herein, Seller and Buyer agree as follows:
1. Sale and Purchase of Assets
and Liabilities .
1.1 Sale and Purchase of
Assets . At the Closing (as hereinafter defined), on the terms
and subject to the conditions set forth in this Agreement, Seller
shall sell to Buyer and Buyer shall purchase from Seller all of
Seller’s right, title and interest in and to its operating
assets necessary to operate Seller’s business (each, an
“ Asset ”, and, collectively, the “
Assets ”), free and clear of all liens, other than
liens for any current taxes not yet due and payable, charges,
encumbrances and restrictions whatsoever, as follows:
(a) All collectible accounts
receivable of Seller, including those listed on Schedule
1.1(a) .
(b) All current Inventory of Seller
(as hereinafter defined), including the items listed on Schedule
1.1(b) . “ Inventory ” is defined as
(i) no more than twelve (12) months supply of finished
goods that represent active sku’s (excluding discontinued
items), (ii) new finished goods introduced in the past twelve
(12) months, and (iii) component materials that support
active finished goods referenced in (i) above and certain
other component materials that support new finished goods
referenced in (ii) above as determined by Buyer on a
case-by-case basis.
(c) All fixed assets of Seller, such
as tools, dies, molds, designs, computer equipment, furniture and
fixtures, including the items listed on Schedule 1.1(c) (the
“ Fixed Assets ”).
(d) Those leases for personal
property of Seller that Buyer has elected to assume, each of which
shall be duly assigned to Buyer (the “ Equipment
Leases ”), which are listed on Schedule 1.1(d)
.
(e) All of the product formulae,
designs, discoveries, inventions,
patents, trade names, trademarks, service marks,
copyrights and other intellectual property, and all applications to
register any of the foregoing, customer lists, vendor lists,
brochures, and the trade name and trade dress of Seller (the
“ Intangible Assets ”), including the items
listed on Schedule 1.1(e) , each of which shall be duly
assigned to Buyer.
(f) All engineering, product,
manufacturing and assembly specifications, data, processes,
procedures, drawings, blueprints and related data and materials of
Seller, including the items listed on Schedule 1.1(f)
.
(g) All prepayments and deposits
(exclusive of any deposit or prepayment related to real estate or
taxes) which have been made or paid by Seller, to the extent to
which an economic benefit is transferable to Buyer, and copies of
the books and records of Seller (other than any tax returns or tax
records of Seller).
(h) All rights of Seller under
existing sales contracts, agreements, commitments, and purchase and
sales orders, including the items listed on Schedule 1.1(h)
, each of which shall be duly assigned to Buyer (collectively, the
“ Assumed Contracts ”), provided, however
, that to the extent that the assignment of any agreement,
contract, commitment and purchase or sale order requires the
consent of the other party thereto, this Agreement shall not
constitute an agreement to assign the same if an attempted
assignment would constitute a breach thereof, but Seller agrees
that it will use its commercially reasonable efforts to obtain the
written consent of the parties to any such agreement, contract,
commitment and purchase or sales order to the assignment thereof to
Buyer, and if such consent is not obtained, Seller will cooperate
with Buyer in any reasonable arrangement designed to provide for
Buyer the benefits under any such agreement, contract, commitment
and purchase or sales order.
(i) Any manuals, copies of books and
records pertinent to the operation of Seller’s
business.
(j) To the extent transferable or
assignable, all licenses, permits, orders or approvals of
governmental or regulatory agencies that are material to the
conduct of Seller’s business (collectively, the “
Permits ”), including those listed on Schedule
1.1(j) .
1.2 Excluded Assets . The
following shall be excluded from the Assets being sold and
transferred hereunder (the “ Excluded Assets
”):
(a) All cash, marketable securities,
commercial paper, certificates of deposit and other bank deposits,
treasury bills, and other cash equivalents, other than any deposits
associated with Assumed Contracts or Equipment Leases.
(b) Seller’s tax records
(including tax returns), general books of accounts and company
organizational records (collectively, “ Retained Books and
Records ”).
(c) The Purchase Price paid by Buyer
to Seller in connection with the transaction contemplated
herein.
2
(d) The Consigned Inventory (as
hereinafter defined).
(e) The Seller’s license with
respect to the “RC Mouse” and related products, and any
inventory related to such license.
1.3 Transfer and Assumption of
Liabilities . Subject to the terms and subject to the
conditions set forth in this Agreement, Buyer agrees to assume and
pay or discharge as they come due only the following obligations
and liabilities of Seller as they exist as of the Effective Date,
and no others:
(a) Seller’s trade accounts
payable and accruals to non-affiliated parties incurred in the
ordinary course of Seller’s business, as listed on
Schedule 1.3(a) .
(b) All of Seller’s purchase
orders and commitments made in the ordinary course of
Seller’s business for goods, services and supplies, all sales
orders and commitments of Seller made in the ordinary course of
Seller’s business as to which shipments or deliveries shall
not have been made or as to which services shall not have been
rendered, and any other operating liabilities, contracts,
agreements or commitments of Seller to non-affiliated parties which
are set forth on Schedule 1.3(b) .
(c) Seller’s
liabilities/obligations arising under Equipment Leases and the
Assumed Contracts.
(d) Seller’s liability, if
any, for 2006 personal property taxes.
Each and all of the foregoing items
shall be referred to hereinafter as the “ Assumed
Liabilities .”
1.4 Liabilities Not Assumed .
Buyer does not assume or agree to be responsible for any debts,
obligations, liabilities or expenses of Seller whatsoever other
than those described in Section 1.3. The obligations not
assumed by Buyer include, without limitation: (a) warranty
claims for goods sold or services provided by Seller prior to the
Closing; (b) product liability claims for goods sold or
services provided by Seller prior to the Closing; (c) except
as otherwise provided in Section 1.3 or on Schedule 1.3(a),
any liabilities to any taxing authority for federal, state, local
or other taxes; (d) expenses arising out of or in connection
with the negotiation and preparation of this Agreement or the
consummation of the transaction provided for herein;
(e) employment agreements, employee benefit plans, unfunded
pension liabilities or post-retirement liabilities; (f) bank
debt or guarantees of any related party debt; (g) liabilities
related to consulting and noncompete agreements; (h) any and
all forms of liabilities with respect to related parties;
(i) Seller’s office lease or (j) any other
non-operating liabilities (“ Excluded Liabilities
”).
1.5 Sale of Inventory Not
Purchased by Buyer . Any inventory of Seller that is not
purchased by Buyer at the Closing (the “ Consigned
Inventory ”) will be sold by Buyer on a consignment
basis. Buyer shall use commercially reasonable efforts to sell the
Consigned Inventory in a manner that maximizes the proceeds from
such sales. The proceeds of the sales
3
of Consigned Inventory, net out-of-pocket costs
directly related to the sales, shall be split equally between Buyer
and Seller and Buyer shall remit to Seller its share of the
proceeds on a monthly basis. Buyer will provide Seller with regular
reports no less frequent than quarterly detailing sales results and
the status of any remaining Consigned Inventory.
2. Consideration and
Allocation . In consideration for Buyer’s purchase of
Seller’s Assets, Buyer shall satisfy and discharge the
Assumed Liabilities and shall pay to Seller the following (the
“ Purchase Price ”):
(a) a cash payment in the amount of
$464,998.00 (the “ Estimated Cash Payment ”),
which amount is based upon eighty percent (80%) of
Seller’s collectible accounts receivable (currently estimated
and to be confirmed based on year-end financial statements within
thirty (30) days hereafter) plus fifty percent (50%) of
Seller’s Inventory (current estimated and to be counted as of
the Effective Date and valued within thirty (30) days
hereafter);
(b) 3,082,000 shares of
Buyer’s common stock (“ Common Stock ”) in
certificated form, to be delivered at Closing; and
(c) A warrant to purchase 2,729,000
additional shares of Buyer’s common stock at between $.60 and
$.75 per share. A copy of the warrant is attached hereto as
Exhibit B (“ Warrant A ”).
Notwithstanding the foregoing, twelve and
one-half percent (12.5%) of the estimated cash payment set
forth in subparagraph (a) above (i.e., $58,125.00) shall be
held back from the cash payment of the Purchase Price (the “
Holdback Amount ”) pending a final determination of
the accounts receivable and Inventory as set forth in
Section 2(a) above (the “ Actual Cash Payment
”). The amount payable by Buyer or Seller to the other party
upon determination of the Actual Cash Payment shall be determined
by subtracting the Holdback Amount from the amount determined by
subtracting the Actual Cash Payment from the Estimated Cash Payment
(i.e., the following formula: (Estimated Cash Payment –
Actual Cash Payment) – Holdback Amount = amount of adjustment
payment). If the result is a positive number, then that amount will
be immediately due and payable to Buyer, and if the amount is
negative, that amount (as a positive number) will be immediately
due and payable to Seller.
(d) Buyer and Seller agree to
allocate the consideration for the Assets for all purposes
(including financial accounting and tax purposes) in accordance
with Schedule 2(d) attached hereto, which financial accounting
allocation shall be according to GAAP, and shall file all tax
returns, including Form 8594, consistent with such allocation
schedule. Such Schedule 2(d) shall be attached in draft form
at Closing and replaced with a final schedule within thirty
(30) days of Closing.
3. Closing . The “
Closing ” shall be deemed to have occurred at the
close of business on the Effective Date.
4. Representations and Warranties
by Seller . As a material inducement to Buyer to
4
execute this Agreement and perform
its obligations hereunder, Seller represents and warrants to Buyer
as follows:
4.1 Organization and Standing
. Seller is a limited liability company duly organized, validly
existing and in good standing under the laws of the State of Ohio,
and has the requisite corporate power and authority to enter into
this Agreement, to perform its obligations hereunder and to carry
out the transactions contemplated hereby. Seller is duly qualified
to do business and is in good standing in each jurisdiction in
which the failure to be so qualified would result in a material
adverse effect on Seller or the Assets and has the requisite
corporate power and authority to own, lease and utilize its assets,
properties and business and to carry on its business as such
business is presently being conducted.
4.2 Authorization by Seller .
The execution, delivery and performance by Seller of this
Agreement, the Voting Agreement between , among others, Buyer and
Seller (the “ Voting Agreement ”), the
Subordinated Promissory Note made in favor of Seller by Buyer in
the original principal amount of $250,000 (the “ Note
”), the Registration Rights Agreement between, among others,
Buyer and Seller (the “ Rights Agreement ’), and
Warrant A and Warrant B issued to Seller by Buyer (the “
Warrants ”), and along with the Voting Agreement, Note
and Rights Agreement, the “ Transaction Documents
”), and the consummation by Seller of the transactions
contemplated hereby and thereby, has been duly authorized by all
requisite limited liability company action. The Transaction
Documents have been duly and validly executed and delivered by
Seller and constitutes a valid and binding obligation of Seller
enforceable against Seller in accordance with its terms, except
insofar as enforceability thereof may be limited by bankruptcy,
insolvency or other similar laws affecting the enforceability of
creditors’ rights, or by limitations in the availability of
the remedy of specific performance or injunctive relief, or by
general equity principles.
4.3 Approvals, Consents, Etc
. Except as set forth on Schedule 4.3 , all consents,
authorizations or approvals of, or waiver or exemption by, any
other person required in connection with the execution delivery or
performance by Seller of this Agreement or its consummation of the
transactions contemplated thereby have been obtained.
4.4 Compliance With Other
Instruments . The execution, delivery and performance by Seller
of this Agreement will not violate in any material respect
Seller’s Articles of Organization or Operating Agreement, or
the provisions of any applicable law, order or regulation of any
governmental authority having jurisdiction over Seller and will not
conflict with or result in a breach of the terms, conditions or
provisions of any agreement or instrument to which Seller is now a
party or by which Seller is now bound or constitute a default
thereunder that would result in a material adverse effect upon the
Seller or its Assets or result in the imposition of any lien,
charge or encumbrance of any nature whatsoever on the
Assets.
4.5 Title to Assets; Absence of
Liens and Encumbrances . Seller owns outright and has good and
marketable title to all of the Assets, free and clear of all liens,
charges and encumbrances, except for (a) liens, charges or
encumbrances specifically assumed or permitted hereunder,
(b) liens for current taxes not yet due and payable, and
(c) assets disposed of, or subject to purchase or sales orders
entered into, in the ordinary course of business.
5
4.6 Financial Statements .
The balance sheets of Seller as of December 31, 2004 and as of
November 30, 2005 (the “ Balance Sheet Date
”) and the related statements of income and retained earnings
and changes in financial position such periods, have been delivered
to Buyer by Seller (the “ Financial Statements
”). Said Financial Statements are accurate and complete, and
present fairly in all material respects the financial position of
Seller as of such dates and the results of operations of Seller for
such respective periods. Except as reflected on the Financial
Statements, as of the dates thereof there were no accrued or
undisclosed liabilities, there were no special or non-recurring
charges against income, and there were no matters for which
reserves should be established.
4.7 Changes in Financial
Condition . Since the Balance Sheet Date, there has been no
material adverse change in the condition of Seller, and Seller has
no Knowledge of any such change which is threatened, nor has there
been any damage, destruction or loss, whether or not covered by
insurance, which could have or has had a material adverse effect on
the condition of Seller. Since the Balance Sheet Date, Seller has
not: (a) incurred any liabilities or obligations out of the
ordinary course of Seller’s business; (b) entered into
any material contracts or agreements other than in the ordinary
course of Seller’s business; (c) made any transfers of
property other than in the ordinary course of Seller’s
business; or (d) changed any of its products or suppliers nor
have any of its suppliers, to the Knowledge of Seller, threatened
to discontinue the sale of supplies to Seller. For purposes of this
Agreement, “Knowledge” means the actual knowledge of
Charles C. MacMillan, Douglas A. Belknap and Mark
Molitoris.
4.8 Tax Matters . All tax
returns (federal, state, county and local) which were required to
be filed by Seller through the Closing have been duly filed with
the appropriate taxing authority, and Seller has paid all taxes
shown (including amounts withheld from employees) as due and
payable on such returns.
4.9 Accounts Receivable . The
accounts receivable of Seller reflected in its Financial Statements
arose, and the accounts receivable thereafter acquired by Seller on
or prior to the Effective Date arose, from bona fide transactions
in the ordinary course of business. Seller has no Knowledge of the
uncollectibility of any of said accounts.
4.10 Inventory . The
Inventory is suitable and usable or salable in the ordinary course
of business for the purposes for which intended, and has been
reflected in the Financial Statements and carried on the books of
account of Seller in accordance with generally accepted accounting
principles consistently applied. Without limiting the generality of
the foregoing, such Inventory does not include any item that was at
any prior time written-off or written-down by Seller. Seller does
not know of any adverse condition affecting the supply of materials
available to Seller.
4.11 Tangible Property . The
Fixed Assets of Seller being sold or assigned to Buyer hereunder
are in good operating condition and repair, reasonable wear and
tear excepted,
6
without material defect, and fit for the
purposes for which Seller has used such Fixed Assets. All Equipment
Leases, conditional sale contracts, franchises or licenses pursuant
to which Seller may hold or use any interest owned or claimed by
Seller (including, without limitation, options) in or to its Fixed
Assets or other tangible property are in full force and effect and,
with respect to the performance of Seller, there is no default or
event of default or event which with notice or lapse of time or
both would constitute a default.
4.12 Intangible Property .
Schedule 1.1(e) sets forth all of Seller’s Intangible
Assets, including the patents, trademarks, copyrights, service
marks and trade names of Seller, all applications for any of the
foregoing, and all permits, grants and licenses or other rights
running to or from Seller relating to any of the foregoing that are
material to the business of Seller (collectively, “
Patents and Trademarks ”). Except as set forth on
Schedule 4.12 , Seller has the right to use, free and clear
of any claims or rights of others, all of the Patents and
Trademarks. Except as set forth on Schedule 4.12 , Seller
also has the right to use, free and clear of any claims or rights
of others, all trade secrets, inventions, know how, processes,
logos and technology, designs utilized in or incident to the
conduct of its business as presently conducted or as being
developed (“ Trade Secrets ”). Except as set
forth on Schedule 4.12 , Seller does not have any notice
that any other person or entity disputes Seller’s ownership
or right to use any Patents and Trademarks and/or Trade Secrets, or
notice of any claim of any other person or entity relating to any
of the Patents and Trademarks or any of the Trade Secrets, and
Seller does not know of any basis for any such dispute or claim.
Seller has no knowledge that any person or entity has infringed
upon the rights of Seller with respect to any Patents and
Trademarks or Trade Secrets, and, to the Knowledge of Seller,
Seller has not infringed upon any patent, copyright, trademark,
trade secret or other intellectual property right of any other
person or entity.
4.13 Books of Account . The
books of account and other corporate records of Seller are complete
and correct in all material respects and have been maintained in
accordance with good business practice.
4.14 Liabilities . As of
Balance Sheet Date, Seller does not have any indebtedness,
liability, claim or loss, liquidated or unliquidated, secured or
unsecured, accrued, absolute, contingent or otherwise, of a kind
required by generally accepted accounting principles to be set
forth on a financial statement or in the notes thereto (“
Liabilities ”) that were not fully and adequately
reflected or reserved against in its Financial Statements. Except
as set forth on Schedule 4.14 , Seller has not, except in
the ordinary course of business, incurred any Liabilities since the
Balance Sheet Date.
4.15 Employment, Labor and Other
Relations .
(a) Seller is and has heretofore
been in material compliance with all applicable laws respecting
employment and employment practices, terms and conditions of
employment and wages and hours, the sponsorship, maintenance,
administration and operation of (or the participation of its
employees in) employee benefit plans and occupational safety and
health programs, and Seller is not engaged in any material
violation of any applicable law related to employment, including
unfair labor practices or acts of employment
discrimination.
7
Furthermore, Seller has materially complied with
all applicable laws relating to wages, fringe benefits and the
payment of withholding and Social Security taxes, and Seller is not
liable for any arrearage in the payment of wages or any taxes or
penalties for failure to comply with any of the
foregoing.
(b) Except as set forth on
Schedule 4.15 , Seller has no policies with respect to
vacation pay, holiday and/or sick pay, severance pay, pension and
profit-sharing contributions, health, medical or any other type of
employee benefit plan to which Seller presently contributes or is
required to contribute, nor is Seller indebted to any employee
other than for wages and benefits earned during the
curre
