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EXHIBIT 10.2
EXECUTION COPY
ASSET PURCHASE AGREEMENT
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THIS AGREEMENT is entered into as of November ___, 2004 and
effective
as of 12:01 a.m. on November 1, 2004 by and among MAGTECH
ACQUISITION, INC., an
Indiana corporation ("Purchaser"), CARTER M. FORTUNE
("Fortune"), MAGTECH
SERVICES, INC., an Indiana corporation ("Seller") and JERRY L.
THOMPSON, MARK J.
ALLEN, PETER M. FELLEGY, ALLEN C. SHELDON, JAMES R. KRATZET,
JAMES L. DEARING,
GARY E. VOIROL, GEORGE BACHNIVSKY, PETER D. KEELAN, MARK J.
JOSEPH, JERRY D.
NOBLE, JAMES B. FINLEY, DONALD J. HOEFELMEYER AND STEVEN E. ROY
(collectively
"Shareholders").
PREAMBLE
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Subject to the terms and conditions hereof, Purchaser desires
to
purchase and Seller desires to sell certain assets, properties
and rights
relating to or used or useful in connection with Seller's
engineering and
consulting business (the "Business");
AGREEMENT
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NOW, THEREFORE, in order to consummate said purchase and sale
and in
consideration of the mutual agreements set forth herein, the
parties hereto
agree as follows:
SECTION 1
PURCHASE AND SALE OF ASSETS
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1.1 Sale of Assets. Subject to the provisions of this Agreement,
Seller
agrees to sell and Purchaser agrees to purchase, on such date
(the "Closing
Date"), all of Seller's right, title and interest in and to the
following assets
(the "Subject Assets") :
(a) The fixed assets, equipment and machinery, and computer
hardware of
Seller set forth in Schedule 1.1(a);
(b) A complete customer list of Seller's customers current as of
the
Closing Date;
(c) All Intellectual Property (as defined in Section 2.6);
(d) To the extent permitted by the terms of each Assumed
Contract (as
defined below) and applicable law, all outstanding sales
proposals, purchase
orders, agreements or contracts to provide or receive goods
and/or services, all
customer agreements, vendor agreements, commitments, agreements
and licenses
relating to the Intellectual Property, as set forth in Schedule
1.1(d) (the
"Assumed Contracts");
(e) The work not billed, and accounts receivable (the
"Accounts
Receivable") set forth in Schedule 1.1(e) as adjusted to the
Closing Date; and
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(f) All prepaid expenses.
1.3 Assumption of Liabilities It is expressly understood and
agreed
that Purchaser is not assuming or becoming liable for any
liabilities of Seller
of any kind or nature at any time existing or asserted, whether
known or
unknown, fixed, contingent or otherwise not specifically assumed
herein by
Purchaser. Notwithstanding the foregoing, upon the sale and
purchase of the
Subject Assets, Purchaser shall accept and assume and, as the
case may be, pay,
discharge, perform and observe in the ordinary course, the
following, and only
the following liabilities, duties and obligations (the "Assumed
Liabilities"):
(a) All of Seller's rights and executory obligations under the
Assumed
Contracts to be performed after the Closing Date (excluding any
obligations or
liabilities of Seller under any Assumed Contract that were to
have been
performed, fulfilled or satisfied on or prior to the Closing
Date).
(b) From and after the Closing Date, Purchaser may employ for
the
operation of the Business those employees of Seller hired by it
and shall be
responsible for the payment of all wages, expenses and accrued
vacation pay of
such personnel hired by it, (excluding any obligations or
liabilities of Seller
that were to have been performed, fulfilled or satisfied on or
prior to the
Closing Date other than accrued vacation pay).
(c) All of Seller's current liabilities listed in Schedule
1.3(c) in an
amount not to exceed $70,954.00.
1.4 Excluded Liabilities. The liabilities and obligations of
Seller,
whether fixed, contingent, known or unknown and whether existing
as of the
Closing Date or arising thereafter which are not specifically
assumed by
Purchaser under Section 1.3 of this Agreement are hereinafter
referred to as the
"Excluded Liabilities." Seller hereby acknowledges and agrees
that, except for
the Assumed Liabilities, Purchaser is not assuming or becoming
liable for, and
Seller shall remain exclusively liable for, all of the Excluded
Liabilities.
1.5 Purchase Price. In consideration of the sale by Seller to
Purchaser
of the Subject Assets, and subject to the other terms and
conditions contained
herein, Purchaser agrees to pay, subject to Section 1.6, the sum
of Four Hundred
Forty Five Thousand Two Hundred Thirteen and 00/100 Dollars
($445,213) (the
"Purchase Price") to Seller. In addition, Purchaser shall cause
to be issued to
Seller within fifteen (15) days of the Closing Date, four
hundred eighty four
thousand five hundred (484,500) shares of Fortune Diversified
Industries, Inc.
("FDI") common stock. Of the 484,500 shares, 84,500 shares shall
be immediately
vested in Seller and the remaining (400,000) shares shall be
unvested and
subject to the following conditions:
i) If Purchaser has attained a positive cumulative EBIT during
the
period November 1, 2004 to October 31, 2006 ("Test Period"),
Seller shall vest
in one (1) share of the FDI common stock for each $1.00 of
cumulative EBIT (up
to a maximum cumulative EBIT of $400,000).
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ii) EBIT shall be defined as accrued earnings before any
interest and
income taxes. In calculating accrued earnings and EBIT,
Purchaser shall be
allocated a portion (based on standard operating procedures and
on a prorata
basis among the various subsidiaries) of FDI's corporate
overhead. Purchaser
shall cause its outside accountant to calculate EBIT during the
Test Period and
shall provide a written explanation of such calculation to
Seller within sixty
(60) days following the Test Period. Purchaser's calculation of
EBIT shall be
final and binding upon the parties unless Seller objects to such
calculation
within fifteen (15) days of the receipt thereof, in which case
Purchaser and
Seller shall exercise their respective best efforts to resolve
such dispute
within fifteen (15) days of the Seller's objection. If Purchaser
and Seller are
unable to agree on a final calculation of EBIT within this
fifteen (15) day
period, then the parties shall select a neutral accounting firm
(the
"Arbitrating Accounting Firm") which shall make a final
determination. In such
case, each of Purchaser and Seller shall inform the Arbitrating
Accounting Firm
of their respective calculations of EBIT, and each shall be
granted the
opportunity to provide to the Arbitrating Accounting Firm verbal
and written
explanations of their respective calculations. The Arbitrating
Accounting Firm
shall be instructed to complete its calculations within thirty
(30) days of its
engagement. The determination of the Arbitrating Accounting Firm
shall be final
and binding upon the parties. The fees of the Arbitrating
Accounting Firm shall
be paid by the non-prevailing party in any such dispute, as
determined by the
Arbitrating Accounting Firm. Any deposit required by the
Arbitrating Accounting
Firm shall be paid initially by Purchaser, but if Purchaser
prevails in such
dispute, the Seller shall reimburse Purchaser for the
deposit.
iii) If, for any reason, Seller does not vest in some or all of
the
remaining shares, any unvested shares shall immediately, without
any further
action by Seller or Purchaser, revert back to FDI. FDI shall
promptly cancel
said shares upon their reversion.
iv) Prior to vesting, all of the unvested shares shall be
retained in a
Wachovia Securities brokerage account in Indianapolis, Indiana.
Promptly upon
vesting, all of the newly vested shares shall be delivered to
Seller.
At Closing, Purchaser will pay to Seller the sum of Two Hundred
Forty
Five Thousand Two Hundred Thirteen and 00/100 Dollars ($245,213)
to or for the
account of Seller by certified or cashier's check, or wire
transfer, as directed
by Seller. In addition, Purchaser will deposit $200,000
("Escrowed Amount") with
Drewry Simmons Vornehm, LLP ("Escrow Agent"). Purchaser and
Seller hereby agree
to allocate the Purchase Price, as set forth on Schedule 1.5
among the classes
of Subject Assets and to file its federal income tax returns and
its other tax
returns reflecting such allocation, including Form 8594 and any
other reports
required by Section 1060 of the Internal Revenue Code of 1986,
as amended
("Code").
1.6. Purchase Price Adjustments. If on the Closing Date,
Seller's Total
Assets do not exceed Seller's Current Liabilities by $445,213
("Target Net
Worth"), the Purchase Price shall be decreased or increased in
an amount equal
to the difference between the Target Net Worth and the actual
difference between
Total Assets and Current Liabilities. Total Assets shall be
defined as: (i)
accounts receivable, (ii) work not billed, (iii) prepaid
expenses and(iv) fixed
assets, equipment and machinery, and computer hardware set forth
in Schedule
1.1(a) (valued at $6,000 for the purposes of this section).
Current Liabilities
shall be defined as those liabilities listed on Schedule 1.3(c).
Total Assets
and Current Liabilities shall be determined in accordance with
GAAP consistently
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applied. An example of the Purchase Price calculation (using
December 31, 2003
balances) is attached as Schedule 1.6.
Within forty-five (45) days after the Closing, Purchaser and
Seller
shall attempt to reconcile and agree upon Total Assets and
Current Liabilities
that existed on the Closing Date. If upon reconciliation the
Target Net Worth
has not been attained, Seller and Purchaser shall jointly notify
the Escrow
Agent to promptly (within fifteen (15) days) refund to Purchaser
in cash an
amount equal to the amount of the deficiency. In addition,
Seller shall promptly
refund to Purchaser the amount of any deficiency that exceeds
the Escrowed
Amount. If upon reconciliation, the Target Net Worth has been
exceeded,
Purchaser shall promptly (within fifteen (15) days) deposit into
escrowan amount
equal to the amount of the excess.
If Purchaser and Seller are unable to agree on a final
calculation of
the difference between Total Assets and Current Liabilities on
or before the
deadline specified in the preceding paragraph, then the
Arbitrating Accounting
Firm shall make a final determination thereof. In such case,
each of Purchaser
and Seller shall inform the Arbitrating Accounting Firm of their
respective
calculations of the amounts at issue, and each shall be granted
the opportunity
to provide to the Arbitrating Accounting Firm verbal and written
explanations of
their respective calculations. The Arbitrating Accounting Firm
shall be
instructed to complete its calculations within thirty (30) days
of its
engagement. The determination of the Arbitrating Accounting Firm
shall be final
and binding upon the parties. The fees of the Arbitrating
Accounting Firm shall
be paid by the non-prevailing party in any such dispute, as
determined by the
Arbitrating Accounting Firm. Any deposit required by the
Arbitrating Accounting
Firm shall be paid initially by Purchaser, but if Purchaser
prevails in such
dispute, Seller shall reimburse Purchaser for the deposit. The
date for payment
of any amounts payable under the preceding paragraph shall be
extended if
application of the foregoing dispute resolution mechanism
extends beyond such
date, to the date that is fifteen (15) days following the date
of final
resolution of such dispute.
As of the Closing Date, the Accounts Receivable and Work Not
Billed
acquired by Purchaser are assumed to be one hundred percent
(100%) billable and
collectible. Upon acquisition of the Accounts Receivable and
Work Not Billed,
Purchaser shall for a period of one hundred twenty (120) days
after the Closing
Date ("Collection Period") make reasonable efforts, in the
ordinary course of
business, to bill and collect the Accounts Receivable and Work
Not Billed.
Promptly after completion of the Collection Period, Purchaser
shall reassign to
Seller or its designee any Accounts Receivable or Work Not
Billed (including all
relevant records) that it has been unable to collect during the
Collection
Period. The amount of Accounts Receivable and Work Not Billed
reassigned to
Seller shall decrease the Purchase Price on a dollar-for-dollar
basis and Seller
and Purchaser shall jointly notify the Escrow Agent to promptly
(within fifteen
(15) days) pay such decreased amount to Purchaser. In addition,
Seller shall
promptly pay to Purchaser any decreased amount that exceeds the
Escrowed Amount.
If upon completion of the adjustments and the payments described
above,
there is still a portion of the Escrowed Amount remaining,
Seller and Purchaser
shall jointly notify the Escrow Agent to promptly (within
fifteen (15) days) pay
the balance of the Escrowed Amount to Seller.
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1.7. Put and Call Options. Subject to the limitations and
restrictions
described below and applicable securities laws, Seller may, in
its sole
discretion, sell any or all of its 84,500 shares of vested FDI
common stock
received by it and one-half of any additional shares of FDI
common stock that
vests pursuant to Section 1.5 i) (maximum of 200,000 shares) to
Fortune and
Fortune shall purchase any of Seller's shares of vested FDI
common stock offered
by Seller. The put price per share shall be $1.00. Seller may
only exercise this
put option during the seven (7) day period following the final
determination of
EBIT (pursuant to Section 1.5 ii)). Any closing on a sale of any
or all of the
shares of vested FDI common stock to Fortune shall occur within
ninety (90) days
of Fortune's receipt of written notice from Seller requesting
exercise of its
put option. In addition, Fortune may, in his sole discretion,
call one-half of
any additional shares of FDI common stock that vests pursuant to
Section 1.5 i)
(maximum of 200,000 shares) from Seller and Seller shall sell
any of Seller's
shares of vested FDI common stock that are called by Fortune.
The call price per
share shall be $1.50. Fortune may only exercise this call option
during the
twenty-one day period following the final determination of EBIT
(pursuant to
Section 1.5 ii)). Any closing on a sale of any or all of the
shares of vested
FDI common stock to Fortune shall occur within ninety (90) days
of Seller's
receipt of written notice from Fortune requesting exercise of
his call option.
1.8. Transfer of Subject Assets. On the Closing Date, Seller
shall
deliver or cause to be delivered to Purchaser good and
sufficient instruments of
transfer, transferring to Purchaser title to all of the Subject
Assets. Such
instruments of transfer (a) shall be in the form and will
contain the
warranties, covenants and other provisions (not inconsistent
with the provisions
hereof) which are usual and customary for transferring the type
of property
involved under the laws of the jurisdictions applicable to such
transfers, (b)
shall be in form and substance reasonably satisfactory to
Purchaser and its
counsel, and (c) except as otherwise provided in this Agreement,
shall
effectively vest in Purchaser good and marketable title to all
the Subject
Assets free and clear of all licenses, liens, encumbrances,
mortgages and
security interests whatsoever (collectively "Liens") other than
Assumed
Liabilities. To the extent allowed under each Assumed Contract
and to the extent
allowed by law, on the Closing Date, Seller shall also deliver
or cause to be
delivered to Purchaser all of the Assumed Contracts and such
assignments thereof
as are necessary to assure Purchaser their full and useful
benefit. Seller and
Purchaser shall at and subsequent to the Closing Date cooperate
in the
transition of the Business and the Assumed Contracts to
Purchaser, including any
commercially reasonable efforts to maintain the goodwill and
business of
customers of the Business.
SECTION 2
SELLER'S AND SHAREHOLDERS' REPRESENTATIONS AND WARRANTIES
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Seller and each of the Shareholders hereby jointly and
severally
represents and warrants to Purchaser as of the date of this
Agreement as
follows:
2.1 Organization of Seller. Seller is a corporation duly
organized,
validly existing and in good standing under the laws of Indiana,
with full power
and authority to own or lease its properties and to conduct the
Business in the
manner and in the places where such properties are owned or
leased or such
business is currently conducted. Seller is duly qualified to
conduct the
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Business in all states in which the failure to so qualify would
have a material
adverse effect on the Business.
2.2 Authority of Seller and Shareholders. Seller and each of
the
Shareholders have the full right, authority and power to enter
into this
Agreement and each agreement, document and instrument to be
executed and
delivered by or on behalf of Seller or any of the Shareholders
pursuant to this
Agreement (the "Seller Documents") and to carry out the
transactions
contemplated hereby and thereby. The execution, delivery and
performance by
Seller and each of the Shareholders of this Agreement and Seller
Documents have
been duly authorized by all necessary action of Seller and each
of the
Shareholders and no other action on the part of Seller or any of
the
Shareholders is required in connection therewith. This Agreement
and Seller
Documents executed and delivered by Seller and each of the
Shareholders pursuant
to this Agreement constitute, or when executed and delivered
will constitute,
valid and binding obligations of Seller and each of the
Shareholders enforceable
in accordance with their respective terms, except as such
enforceability may be
limited by applicable bankruptcy, insolvency or other similar
laws affecting
creditors' rights. The execution, delivery and performance by
Seller of this
Agreement, Seller Documents and the consummation of the
transactions
contemplated hereby or thereby:
(a) Does not and will not violate any provision of the Articles
of
Incorporation or Bylaws of Seller, in each case as amended to
date;
(b) Does not and will not violate any laws of the United States,
or any
state or other jurisdiction applicable to Seller or require
Seller to obtain any
approval, consent or waiver of, or make any filing with, any
person or entity
(governmental or otherwise) that has not been obtained or
made;
(c) Does not and will not result in a breach of, constitute a
default
under, accelerate any obligation under, or give rise to a right
of termination
of any indenture, loan or credit agreement or any other
agreement, contract
instrument mortgage, lien, lease, permit authorization, order,
writ, judgment,
injunction, decree, determination or arbitration award to which
Seller is a
party or by which any of the property of Seller is bound or
affected, or result
in the creation or imposition of any Lien (except for Assumed
Liabilities) on
any of the Subject Assets. The officers or agents of Seller who
execute this
Agreement and Seller Documents contemplated hereby on behalf of
Seller have and
shall have all requisite power to do so in the name of and on
behalf of Seller.
2.3 Absence of Restrictions. Neither Seller or any of the
Shareholders
has made any other agreement with any other party with respect
to the sale or
any other disposition or encumbrance of the Business or the
Subject Assets.
2.4 Title to Assets. Seller has good, marketable and
indefeasible title
to all of the Subject Assets, free and clear of all claims,
liabilities,
restrictions and Liens. Upon the sale, assignment, transfer and
delivery of the
Subject Assets to Purchaser under and in accordance with this
Agreement and
Seller Documents, there will be vested in Purchaser good,
marketable and
indefeasible title to the Subject Assets, free and clear of all
Liens. The
Subject Assets: (i) include certain assets and properties used
or held for use
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by Seller to conduct the Business as currently conducted; and
(ii) include
certain assets and properties necessary for Purchaser to operate
the Business in
the same manner as Seller.
2.5 Seller's Business Operations. Seller has no liabilities of
any
nature, whether accrued, absolute, contingent or otherwise,
asserted or
unasserted, known or unknown (including without limitation
liabilities as
guarantor or otherwise with respect to obligations of others, or
liabilities for
taxes due or then accrued or to become due or contingent or
potential
liabilities relating to activities of the Business or the
conduct of the
Business) which will materially and adversely affect the conduct
of the Business
subsequent to Closing.
2.6 Intellectual Property.
(a) Seller has exclusive ownership of, or valid license or
authority to
use, all trade secrets, know how, computer software, licenses,
trade or product
names, company names, logos, customer lists, mailing lists,
sales and
advertising material, engineering information, technology,
development rights,
drawings and designs, customer specifications, supplier
information, systems,
data compilations, research results or other proprietary rights,
goodwill,
telephone numbers, fax numbers, URL addresses, trade and product
names,
(including but not limited to all rights to the name "Magtech"
and any
derivatives thereof) and all proprietary property and products
(collectively,
"Intellectual Property") used in the Business as presently
conducted. The
Intellectual Property is freely transferable to Purchaser and
constitutes all of
the technology, proprietary rights and intellectual property
necessary in order
for Purchaser to operate the Business in the ordinary course as
presently
conducted and perform the Assumed Contracts in accordance with
their terms.
Seller has the non-exclusive right to use, free and clear of
claims or rights of
other persons, all of the Intellectual Property without payments
to or consents
from any other party.
(b) All licenses or other agreements (if any) under which Seller
is
granted rights in any of the Intellectual Property are in full
force and effect
and there is no material default by any party thereto. The
licensors under said
licenses and other agreements (if any) have and had all
requisite power and
authority to grant the rights purported to be conferred thereby.
True and
complete copies of all such licenses or other agreements, and
any amendments
thereto (if any) have been provided on Schedule 2.6(b).
(c) Seller's use of any Intellectual Property does not infringe
any
rights of any other person. Seller is not making unauthorized
use of any
confidential information or trade secrets of any person,
including without
limitation any former employer or any past or present employee
of Seller.
(d) Notwithstanding anything in this Agreement or the related
Bill of
Sale to the contrary, Seller shall convey all of its interest in
its software to
Purchaser, free and clear of all Liens. Purchaser acknowledges
and agrees that
certain software may require the consent of the licensor to
transfer. Purchaser
also acknowledges and agrees that Seller does not have to obtain
the consent of
such licensors
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2.7 Assumed Contracts. All of the Assumed Contracts have been
entered
into in the ordinary course of business, are in full force and
effect and have
not been amended, extended or otherwise modified (whether orally
or in writing),
except for amendments, extensions, and modifications made in the
ordinary course
of business consistent with past practices. Neither Seller nor
any other party
thereto is in default under any such Assumed Contracts (a
"default" being
defined for purposes hereof as an actual default, other than
late payment of an
Account Receivable, or any set of facts which would, upon
receipt of notice or
passage of time or both, constitute a default, other than late
payment of an
Account Receivable). Seller is not a party to or subject to any
contract or
agreement that will impose any material obligations on Purchaser
(except for the
obligations to be performed under the Assumed Contracts in the
ordinary course
of business) or otherwise materially impair the value of the
Subject Assets
after the Closing Date. All of the terms of each Assumed
Contract as amended,
are set forth in writing and true and complete written copies of
all of the
Assumed Contracts have been provided to Purchaser.
2.8 No Litigation; Compliance. There is no litigation or
governmental
or administrative proceeding or investigation pending or, to
Seller's knowledge,
threatened against Seller or any of its affiliates which may
have an adverse
effect on the Business or the Subject Assets subsequent to
Closing, or which
would prevent the consummation of the transactions contemplated
by this
Agreement or the Related Agreements. Seller has not received
notice of any
violation or alleged violation of any applicable statute,
ordinance, order, rule
or regulation.
2.9 Taxes. Seller has paid or caused to be paid any and all
federal,
state, local, foreign and other taxes, and all deficiencies, or
other additions
to tax, interest, fines and penalties that are due and payable
by Seller through
the Closing Date, whether disputed or not. Seller has, in
accordance with all
applicable law, filed all federal, state, local, foreign and
other tax returns
required to be filed by Seller through the Closing Date, and all
such returns
correctly and accurately set forth the amount of any taxes
relating to the
applicable period. There is no unassessed tax deficiency
proposed or threatened
against Seller. None of the Subject Assets are or will be
subject to any lien or
encumbrance for taxes which are past due or which became payable
or accrued on
or prior to the Closing Date.
2.10 Insurance. The liability and casualty insurance
policies
pertaining to Seller are in full force and effect. All premiums
due to the date
hereto have been paid in full and such policies will remain in
effect through
the Closing Date. All such policies have been issued by
reputable insurance
companies which are actively engaged in the insurance business
and authorized to
issue policies in Seller's jurisdiction(s) of business
operation.
2.11 Warranty or Other Claims. There are no existing or
threatened
errors or omissions, warranty or other similar claims against
Seller or any
Subject Asset. Seller shall be responsible for any errors or
omissions claims,
warranty claims or any other claims relating to products or
serv
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