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EXHIBIT 2.1
Execution
Copy
ASSET PURCHASE
AGREEMENT
dated
February 20,
2008
between
FISHER-KLOSTERMAN, INC., A
KENTUCKY CORPORATION,
CECO ENVIRONMENTAL
CORP.,
and
FKI ACQUISITION
CORP.
and joined in for limited
purposes by
WILLIAM L. HEUMANN, GERALD
J. PLAPPERT, JR. and PAUL S. BRANNICK,
the shareholders of
FISHER-KLOSTERMAN, INC.
Execution
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ASSET PURCHASE
AGREEMENT
THIS ASSET PURCHASE
AGREEMENT (this “ Agreement ”) is made and
entered into on February 20, 2008 by and among
(a) Fisher-Klosterman, Inc., a Kentucky corporation (“
Seller ”), (b) CECO Environmental Corp., a
Delaware corporation (“ Parent ”), and
(c) FKI Acquisition Corp., a Delaware corporation (“
Buyer ”), and is joined in solely for the purposes of
Article VIII, Section 9.07 and Article X, by William L.
Heumann, Gerald J. Plappert, Jr., and Paul S. Brannick, all
individual residents of the Commonwealth of Kentucky (individually
and collectively the “ Selling Shareholders
”).
RECITALS:
WHEREAS, Seller is
engaged in the business of designing, manufacturing, and servicing
equipment for product recovery, dust collection, and air pollution
control, including high efficiency cyclones, Buell ® FCC cyclones,
aerodynamic classifiers, electrostatic precipitators, fabric filter
collectors, venturi particulate scrubbers and packed tower
absorbers (the “ Business ”); and
WHEREAS, Buyer desires
to purchase from Seller, and Seller desires to sell to Buyer the
rights, properties and assets associated with the Business and
assume certain of the liabilities relating to the Business, upon
the terms and subject to the conditions set forth in this
Agreement;
NOW, THEREFORE, in
consideration of the foregoing and the representations, warranties,
covenants and agreements herein contained, and other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
DEFINITIONS
The following terms, as used herein,
have the following meanings:
“ Accounts
Receivable ” means all trade accounts receivable of
Seller and the full benefit of all security for such accounts or
rights to payment to the extent reflected on the Effective Time
Balance Sheet and any claim, remedy or other right related to any
of the foregoing.
“ Affiliate
” means, with respect to the indicated Person, any Person
directly or indirectly controlling, controlled by, or under common
control with such other Person.
“ Agreement
” shall have the meaning set forth in the first paragraph of
this Agreement.
“ Allocation
Schedule ” shall have the meaning set forth in
Section 6.02(b).
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“ Ancillary
Agreements ” means the Bill of Sale, the Assignment and
Assumption Agreement, the New Louisville Lease, the Indemnification
Escrow Agreement, the Employment Agreements, the Patent Assignment,
the Trademark Assignment Agreement, and the Domain Name Transfer
Agreement.
“ Applicable Law
” means any applicable federal, state, local, provincial,
municipal, foreign or other law, statute, constitution, resolution,
ordinance, code, edict, decree, rule, regulation, ruling or
requirement issued, enacted, adopted, promulgated, implemented or
otherwise put into effect by or under the authority of any
Governmental Entity on or prior to the Effective Time.
“ Assignment and
Assumption Agreement ” means the Assignment and
Assumption Agreement dated the Effective Time pursuant to which the
Assumed Contracts and Assumed Liabilities shall be assigned to and
assumed by Buyer in the form mutually agreed upon by Buyer and
Seller
“ Assumed
Contracts ” means (i) all of the contracts and
(ii) all outstanding written offers or solicitations made by
or to Seller to enter into any contract, relating to the Business
except for those items which are Excluded Assets.
“ Assumed
Liabilities ” shall have the meaning set forth in
Section 2.03.
“ Audited Financial
Statements ” means the Year End Balance Sheet and the
related statements of income and cash flows as of and for the year
ended December 31, 2006.
“ Bill of Sale
” means the Bill of Sale dated the Effective Time, pursuant
to which Seller shall transfer to Buyer all assets included in the
Purchased Assets (except for those transferred pursuant to the
Assignment and Assumption Agreement, the Patent Assignment, the
Trademark Assignment Agreement and the Domain Name Transfer
Agreement) in the form mutually agreed upon by Buyer and
Seller.
“ Brannick
Employment Agreement ” means the Employment Agreement
dated as of the Effective Time between Buyer and Paul S. Brannick,
substantially in the form attached hereto as Exhibit B-1
.
“ Business
” shall have the meaning set forth in the recitals
hereto.
“ Business Day
” means a day other than a Saturday, Sunday or other day on
which the Federal Reserve Bank of New York is authorized or
required by Applicable Law to close.
“ Buyer ”
shall have the meaning set forth in the first paragraph of this
Agreement.
“ Buyer Balance
Sheets ” shall have the meaning set forth in
Section 5.07.
“ Buyer Indemnified
Persons ” shall have the meaning set forth in
Section 8.02.
“ Buyer’s
Damages ” shall have the meaning set forth in
Section 8.02.
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“ Buyer Shares
” shall have the meaning set forth in
Section 5.06.
“ Buyer’s
Disclosure Schedule ” shall have the meaning set forth in
Article V.
“ China ”
means the People’s Republic of China, excluding for the
purposes of this Agreement the Hong Kong Special Administrative
Region, the Macau Special Administrative Region and
Taiwan.
“ China Cash
” shall have the meaning set forth in
Section 2.02(a).
“ China Facility
” means the facility of China Subsidiary located at Lane 80,
No. 1030 Heng’an Road, Pudong District, Shanghai, the
People’s Republic of China.
“ China Lease
” means the lease dated January 20, 2007, among Shanghai
Dongfang Hydraulic Component Factory, China Subsidiary and Carrier
Vibrating Equipment (Shanghai) Co., Ltd.
“ China
Subsidiary ” means Kentucky Fabrication (Shanghai) Co.,
Ltd.
“ Claimant
” shall have the meaning set forth in
Section 8.05(a).
“ Closing
” means the consummation of the transactions contemplated in
this Agreement in accordance with the provisions of Article
III.
“ Closing Date
” shall have the meaning set forth in
Section 3.01.
“ COBRA ”
means the requirements of Section 601 et seq. of ERISA,
Section 4980B of the Code and any other comparable Applicable
Law.
“ Code ”
means the Internal Revenue Code of 1986, as amended.
“ Confidential
Information ” will have the meaning set forth in the
Confidentiality Agreement between Seller and Buyer dated
August 2, 2007.
“ Damages
” shall have the meaning set forth in
Section 8.03.
“ Defending
Party ” shall have the meaning set forth in
Section 8.05(a).
“ Deposit
” shall mean the $250,000 deposit delivered by Buyer to
Seller upon execution of this Agreement.
“ Direct Claim
Notice ” shall have the meaning set forth in
Section 8.06.
“ Disclosure
Schedule ” shall have the meaning set forth in
Article IV.
“ Dispute
” shall have the meaning set forth in
Section 10.13.
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“ Domain Name
Assignment Agreement ” means the Domain Name Assignment
Agreement, dated the Effective Time, pursuant to which Seller shall
transfer and assign its interest in its domain name in the form
mutually agreed upon by Buyer and Seller.
“ Effective Time
Balance Sheet ” shall have the meaning set forth in
Section 2.07(a).
“ Employees
” shall have the meaning set forth in
Section 7.01(a).
“ Employee Benefit
Plans ” shall have the meaning set forth in
Section 4.23.
“ Employment
Agreements ” means the Heumann Employment Agreement, the
Plappert Employment Agreement, the Brannick Employment Agreement,
the Lugar Employment Agreement, the Keefer Employment Agreement and
the Lewis Employment Agreement.
“ Environmental
Costs ” means any cleanup costs, remediation or removal
costs, losses, liabilities or obligations, payments or damages
arising out of or relating to or resulting from any Environmental
Matters and required to be incurred pursuant to any Environmental
Laws.
“ Environmental
Laws ” means any federal, state or local environmental,
health or safety law, common law, code or ordinance, and any rules
or regulations promulgated thereunder, including the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C.
§§ 9601 et seq ., the Resource Conservation and
Recovery Act, 42 U.S.C. §§ 6901 et seq ., the
Toxic Substances Control Act, 15 U.S.C. §§ 2601 et
seq ., the Occupational Safety and Health Act, 29 U.S.C.
§§ 651 et seq ., the Clean Water Act, 33 U.S.C.
§§ 1251 et seq . and the Clean Air Act, 42 U.S.C.
§§ 7401 et seq ., as any of the same are in effect
as of the Effective Time.
“ Environmental
Matters ” means any matter arising out of, relating to or
resulting from pollution, contamination or protection of the
environment, human health or safety and any matters relating to
emissions, discharges, releases or threatened releases, of
Hazardous Substances into the air, surface water, groundwater,
soil, land surface or subsurface, buildings or facilities or any
matter otherwise arising out of, relating to, or resulting from the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Substances.
“ Equity
Securities ” means any capital stock or other equity
interest or any securities convertible into or exchangeable for
capital stock or any other rights, warrants or options to acquire
any of the foregoing securities.
“ ERISA ”
shall have the meaning set forth in Section 4.23.
“ Escrow Agent
” means National City Bank.
“ Escrow Amount
” shall have the meaning set forth in
Section 2.06.
“ Excluded
Assets ” shall have the meaning set forth in
Section 2.02.
“ Excluded
Liabilities ” shall have the meaning set forth in
Section 2.04.
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“ Facilities
” means the Louisville Facility, the Pennsylvania Facility
and the China Facility.
“ Financial
Statements ” means the Audited Financial Statements and
the Interim Financial Statements, which include, on a consolidated
basis, the financial statements of the Seller’s
Subsidiaries.
“ Fixed Asset
Excess ” shall have the meaning set forth in
Section 2.07(f).
“ Fixed Asset
Shortfall ” shall have the meaning set forth in
Section 2.07(f).
“ Fixed Assets
” means all of Seller’s furniture, fixtures, machinery,
equipment, computer hardware, servers, routers, management systems,
security systems, vehicles and other tangible personal property of
Seller located at the Facilities and held for use or sale by the
Business, except for those items listed on Annex 2.02(j)
.
“ GAAP ”
means generally accepted accounting principles in the United States
as promulgated by the Financial Accounting Standards
Board.
“ Governmental
Entity ” means any: (i) nation, state, commonwealth,
province, territory, county, municipality, district or other
jurisdiction of any nature; (ii) federal, state, local,
municipal, foreign or other government; or (iii) governmental
or quasi-governmental authority of any nature, including any
governmental ministry, division, department, agency, bureau,
commission, instrumentality, official, organization, unit or body
and any court or other tribunal.
“ Hazardous
Substance ” means any substance that is designated or
defined as a hazardous substance, toxic or dangerous, a solid or
hazardous waste, or as a pollutant or contaminant or otherwise
regulated under any Environmental Law.
“ Heimbrock
Division ” shall mean the operations of Seller sold to
Louis J. Heimbrock prior to the date of this Agreement.
“ Heumann Employment
Agreement ” means the Employment Agreement dated as of
the Effective Time between Buyer and William L. Heumann,
substantially in the form attached hereto as Exhibit B-2
.
“ HLLC Real
Estate ” shall have the meaning set forth in
Section 2.02(c).
“ Indemnification
Escrow Agreement ” means the Indemnification Escrow
Agreement among Buyer, Seller and Escrow Agent, dated the Effective
Time, relating to the Escrow Amount in the form mutually agreed
upon by Buyer and Seller.
“ Indemnified
Persons ” shall have the meaning set forth in
Section 8.03.
“ Indemnity
Claim ” means any claim, demand, suit, action or
proceeding by Seller or Buyer (and not a third party), which could
reasonably give rise to a right of indemnification under Article
VIII.
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“ Independent
Accounting Firm ” means BKD, LLP, or if such entity is
not able to serve, a mutually acceptable regionally recognized
accounting firm having no material relationship to Buyer or Seller
or their respective Affiliates and having offices in locations
suitable to conduct the necessary review.
“ Initial
Payment ” shall have the meaning set forth in
Section 2.06(a).
“ Intellectual
Property ” shall mean all copyrights, patents, service
marks, trademarks, trade names, trade dress, logos, domain names
and all registrations or applications for registration of any of
the foregoing owned by Seller or used by Seller in connection with
the ownership or operation of the Business and the Purchased
Assets.
“ Interim Balance
Sheet ” shall mean the unaudited balance sheet of the
Seller as of December 31, 2007 included in the Interim
Financial Statements.
“ Interim Financial
Statements ” shall mean the Interim Balance Sheet and the
related statement of income dated December 31 2008 attached
hereto as Exhibit A .
“ Inventory
” means the raw materials, manufacturing supplies, packaging
materials, purchased products and finished goods owned by Seller
and used or produced in the Business.
“ Keefer Employment
Agreement ” means the Employment Agreement dated as of
the Effective Time between Buyer and Gary Keefer, substantially in
the form attached hereto as Exhibit B-3 .
“ Leased Real
Property ” shall have the meaning set forth in
Section 4.16.
“ Legal
Proceeding ” means any action, suit, litigation,
arbitration, proceeding (including any civil, criminal,
administrative, investigative or appellate proceeding), hearing,
audit or investigation commenced, brought, conducted or heard by or
before any court or other Governmental Entity or any arbitrator or
arbitration panel.
“ Lewis Employment
Agreement ” means the Employment Agreement dated as of
the Effective Time between Buyer and Russell Lewis, substantially
in the form attached hereto as Exhibit B-4 .
“ Liabilities
” means, with respect to any Person, any liability or
obligation of such Person of any kind, character or description,
whether known or unknown, absolute or contingent, accrued or
unaccrued, secured or unsecured, joint or several, due or to become
due, vested or unvested.
“ Lien ”
means, with respect to any asset, any mortgage, lien, pledge,
charge or security interest, of any kind in respect of such
asset.
“ Long-Term Debt
” means any loan or debt obligation due to be paid more than
one year in the future.
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“ Louisville
Facility ” means Seller’s plant and executive
offices located at 822 South 15 th Street, Louisville, KY 40210.
“ Louisville
Lease ” means the lease between Seller and Heumann LLC
relating to the HLLC Real Estate.
“ Lugar Employment
Agreement ” means the Employment Agreement dated as of
the Effective Time between Buyer and Tom Lugar, substantially in
the form attached hereto as Exhibit B-5 .
“ Material Adverse
Change ” means (a) a material adverse change in the
business, operations, results of operation, assets, liabilities or
condition (financial or otherwise) of Seller taken as a whole,
(b) a change that results in a material impairment of
Seller’s ability to perform its obligations under this
Agreement or the Ancillary Agreements or (c) a change that
materially and negatively impacts the rights and remedies of any of
the other parties hereunder.
“ Material Adverse
Effect ” means any event, change, circumstance, effect,
development or state of facts (i) that is materially adverse
to the business, condition (financial or otherwise), or results of
operations of the Seller taken as a whole, except to the extent
that such event, change, circumstance, effect, development or state
of facts results from, alone or in combination, (1) the
markets in which the Seller operates generally, (2) general
economic or political conditions, (3) the public announcement
of this Agreement or of the consummation of the transactions
contemplated hereby, (4) acts of war (whether or not
declared), sabotage or terrorism, military actions or the
escalation thereof or other force majeure events occurring after
the date hereof, (5) any changes in applicable laws,
regulations or accounting rules, or (6) actions taken or rules
promulgated by, the Federal Reserve; provided, in the cases of
clauses (1) through (5) above, such changes do not
disproportionately adversely affect Seller relative to other
similarly situated businesses in which case such disproportionate
changes may be taken into account in determining whether or not a
Material Adverse Effect has occurred; or (ii) that would
adversely affect the ability of Seller to perform its obligations
under this Agreement or to consummate the transactions contemplated
hereby or thereby.
“ Net Working
Capital ” means the difference between (i) Accounts
Receivable net of allowance for doubtful accounts, costs and
estimated earnings in excess of billings, Inventory, quick seals
inventory and classifiers inventory, in each case, as included in
the Purchased Assets, and measured as of and including the
Effective Time (excluding any Excluded Assets), and (ii) the
sum of Seller’s accounts payable, billings in excess of cost
and estimated earnings, accrued commission, customer deposits and
accruals to subcontractors, in each case, as included in the
Assumed Liabilities and measured as of the Effective Time
(excluding any Excluded Liabilities), all as calculated in
accordance with GAAP and the principles used in the calculations of
the Interim Balance Sheet. For purposes of clarity, Net Working
Capital shall be calculated in accordance with the methodology
applied to the Interim Balance Sheet and included as Schedule
1 .
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“ Net Working
Capital Excess ” shall have the meaning set forth in
Section 2.07(e).
“ Net Working
Capital Shortfall ” shall have the meaning set forth in
Section 2.07(e).
“ New Louisville
Lease ” means the lease to be entered into by Buyer and
Heumann LLC relating to the HLLC Real Estate in substantially the
form attached hereto as Exhibit C .
“ Open Orders
” means open orders for goods and services with customers and
suppliers of Seller listed on Schedule 4.06 , together with
related purchase orders, contracts and subcontracts associated
therewith.
“ Ordinary Course of
Business ” means an action taken by Seller in the
ordinary course of the Business that is consistent with past
customs and practices of Seller.
“ Overbillings
” means billings in excess of costs and estimated earnings on
uncompleted contracts.
“ Owned Intellectual
Property ” means all items of Intellectual Property owned
by Seller.
“ Patent
Assignment ” means the Patent Assignment dated the
Effective Time pursuant to which Seller shall assign its interest
in all patents included in the Purchased Assets to Buyer in the
form mutually agreed upon by Buyer and Seller.
“ Pennsylvania
Facility ” means Seller’s facility located at 200
North 7th Street, Suite 2, Lebanon, PA 17046.
“ Pennsylvania
Lease ” means the lease relating to the Pennsylvania
Facility between the Buell Division of Seller and General Electric
Environmental Services, Inc. dated September 10, 2002, as
amended by an Amendment to Office Building Lease between the Buell
Division of Seller and Roy A. Smith, as successor to General
Electric Environmental Services, Inc. dated January 1,
2007.
“ Permits
” shall have the meaning set forth in
Section 4.22.
“ Permitted
Liens ” shall have the meaning set forth in
Section 4.04.
“ Person ”
means an individual, corporation, limited liability company,
partnership, association, trust or other entity or organization,
including a government or political subdivision or an agency or
instrumentality thereof.
“ Personal Property
Leases ” means all leases for all leased personal
property used in the operation of the Business set forth on
Schedule 4.17 .
“ Plappert
Employment Agreement ” means the Employment Agreement
dated as of the Effective Time between Buyer and Gerald J.
Plappert, Jr., substantially in the form attached hereto as
Exhibit B-6 .
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“ Prepaid
Expenses ” shall mean those items constituting prepaid
expenses for purposes of Seller’s balance sheet prepared on a
consistent basis and in accordance with GAAP.
“ Purchase Price
” shall have the meaning set forth in
Section 2.06.
“ Purchase Price
Allocation Referee ” shall have the meaning set forth in
Section 6.02(b).
“ Purchased
Assets ” means, other than assets and properties falling
within the definition of the Excluded Assets, all of Seller’s
right, title and interest in and to the following: the Accounts
Receivable, the Assumed Contracts, the Fixed Assets, the Inventory,
the Work in Process, the Permits, the Open Orders, the Owned
Intellectual Property, the Records, the Leased Real Property, the
China Cash, the Subsidiary Interests and all other properties and
assets of every kind, character and description, tangible or
intangible, owned by Seller and used or held for use in connection
with the Business that are not Excluded Assets.
“ Real Property
Leases ” means the Louisville Lease, the Pennsylvania
Lease and the China Lease.
“ Records
” mean the business books and records of Seller (except for
any of Seller’s Tax records, stock transfer records and other
records expressed in the form of corporate minutes) maintained in
connection with, and necessary to continue the operation of, the
Business as it is currently operated.
“ Registration
Rights Agreement ” means the agreement mutually agreed
upon by Selling Shareholders and Buyer.
“ Schedule
” when followed by a number, refers to a section of the
Disclosure Schedule.
“ Schedule 4.14
Indemnification Amount ” means with respect to the
customer account listed as item 2 on Schedule 4.14 , an
amount equal to the sum of (a) (i) any Accounts
Receivable on the books of Seller with respect to such customer
account as of the Effective Time, net of the amount of such
Accounts Receivable collected by Buyer within 180 days after the
Effective Time, plus (ii) any loss on materials held in
inventory related to this customer account, plus
(iii) any unfulfilled purchase commitments related to this
customer account unless otherwise cancelled , plus
(iv) any other loss associated with this customer
account to the extent sustained by the Buyer ,
minus (b) any termination ,
cancellation or related fees paid by this customer to
Buyer minus any amounts otherwise salvaged from this
transaction.
“ Securities Act
” shall mean the Securities Act of 1933, as
amended.
“ Seller ”
shall have the meaning set forth in the first paragraph of this
Agreement.
“ Seller Indemnified
Persons ” shall have the meaning set forth in
Section 8.03.
“ Seller’s
Damages ” shall have the meaning set forth in
Section 8.03.
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“ Seller’s
Knowledge ,” “ Known to Seller ,”
“ Knowledge of Seller ” and words of similar
import refer to matters actually known with respect to such matters
at or prior to Closing by the following individuals: William L.
Heumann, Gerald J. Plappert, Jr., Paul S. Brannick, Russell Lewis
and, solely with respect to China Subsidiary, Gary
Keefer.
“ Selling
Shareholders ” shall have the meaning set forth in the
first paragraph of this Agreement.
“ Shareholder
Subordinated Debt ” means the $465,000 principal amount
remaining on the debt to William L. Heumann evidenced by a
Promissory Note, accruing interest at 12% per annum, payable
monthly, with the principal amount payable on demand.
“ Subsidiary
” means any entity in which Seller possesses the power,
direct or indirect, to direct the management and policies of the
entity, whether through the ownership of voting securities, by
contract or otherwise.
“ Subsidiary
Interests ” means Seller’s equity interest in China
Subsidiary and FKI, LLC.
“ Tax ”
and “ Taxes ” mean all federal, state, local and
foreign income, profits, windfall, franchise, gross receipts,
environmental, customs duty, capital stock, severances, stamp,
payroll, sales, employment, unemployment, disability, use,
property, withholding, excise, production, license, value added,
occupancy and other taxes, duties or assessments of any nature
whatsoever, together with all interest, penalties and additions
imposed with respect to such amounts.
“ Tax Return
” means any return, declaration, report, claim, election,
notice or information return or statement or other document
(including any related or supporting information, schedules, or
exhibits) filed or required to be filed with any federal, state,
local or foreign Governmental Entity or other authority in
connection with any Tax.
“ Third Party
Claim ” shall have the meaning set forth in
Section 8.05(a).
“ Trademark
Assignment Agreement ” means the Trademark Assignment
Agreement, dated the Effective Time, pursuant to which Seller shall
transfer and assign its interest in all of Seller’s
trademarks in a form mutually agreed upon by Buyer and
Seller.
“ Transferred
Plan ” shall have the meaning set forth in
Section 4.23(d).
“ Underbillings
” means costs and estimated earnings in excess of billings on
uncompleted contracts.
“ Working Capital
Objection Notice ” shall have the meaning set forth in
Section 2.07(b).
“ Working Capital
Referee ” shall have the meaning set forth in
Section 2.07(d).
“ Work in
Process ” means all of Seller’s partially
manufactured products or projects related to customers of Seller as
of the Effective Time, a joint accounting of which shall be made
during the day immediately following the Effective Time.
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“ WARN Act
” means the Worker Adjustment and Retraining Notification Act
of 1988.
“ Year End Balance
Sheet ” means Seller’s consolidated audited balance
sheet as of and for the year ended December 31, 2006, which
includes, on a consolidated basis, the balance sheets of
Seller’s Subsidiaries.
“ $” or
“dollar ” means United States dollars, unless
otherwise specified.
ARTICLE II
PURCHASE AND
SALE
2.01 Purchase and
Sale . Upon the terms and subject to the conditions of this
Agreement, Buyer shall purchase from Seller, and Seller shall
grant, sell, convey, transfer, assign and deliver, or cause to be
sold, transferred, assigned and delivered, to Buyer, all of
Seller’s right, title and interest in and to the Purchased
Assets.
2.02 Excluded
Assets . The following assets and properties of Seller and
Heumann LLC (the “ Excluded Assets ”) shall be
excluded from the Purchased Assets:
(a) all of Seller’s
cash and cash equivalents on hand (including all un-deposited
checks) and in banks, (except any cash and cash equivalents that
are held by China Subsidiary as of the Effective Time (the “
China Cash ”);
(b) all prepaid insurance,
including, general liability, liability, inland marine, D&O and
employee dishonesty insurance;
(c) the real property,
improvements and fixtures located at the Louisville Facility owned
by Heumann LLC and leased to Seller pursuant to the Louisville
Lease (the “ HLLC Real Estate ”) and any other
assets or property owned by Heumann LLC; provided ,
however , that the fixtures listed on Annex 2.02(c)
shall be Purchased Assets;
(d) the assets of the
Heimbrock Division;
(e) all consideration
received and receivable by, and the rights of, Seller under this
Agreement and the Ancillary Agreements;
(f) all records, rights of
recovery, proceeds and causes of action relating to the Excluded
Liabilities and Excluded Assets and all other claims, rights of
recovery and cause of action against third parties, including
claims for refunds and insurance claims, to the extent that such
claims are not related to the Purchased Assets or the Assumed
Liabilities;
(g) all of Seller’s
corporate minute books, stock transfer records, books of account,
checkbooks, cancelled checks, bills and vouchers in support
thereof, bank accounts and any other deposit accounts wherever
located;
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(h) any of Seller’s or
Seller’s Affiliates’ Tax records, assets, credits and
refunds, including net operating loss carrybacks and carryforwards
and Tax credits;
(i) any contracts or
agreements (and rights or causes of action related thereto)
performed by Seller prior to Closing that are not subject to
warranty obligations; and
(j) all assets set forth on
Annex 2.02(j) .
2.03 Assumption of
Liabilities . Upon the terms and subject to the conditions
of this Agreement, Buyer shall irrevocably assume, become
exclusively responsible for and otherwise discharge in accordance
with their terms, (a) the obligations and Liabilities arising
after the Effective Time pursuant to the terms of the Assumed
Contracts, and (b) all current Liabilities set forth on the
Year End Balance Sheet and any other current Liabilities incurred
by Seller in the Ordinary Course of Business from December 31,
2006 through the Effective Time other than the line items on the
Year End Balance Sheet entitled Line of Credit, Current Portion of
LTD and Current Portion of IRB, and any outstanding payroll-related
Liabilities and Taxes through the Effective Time (the “
Assumed Liabilities ”).
2.04 Excluded
Liabilities . Except for the Assumed Liabilities, Buyer
shall not assume or undertake to pay, satisfy or discharge any
other Liability or obligation of Seller, including Seller’s
Long-Term Debt (all such Liabilities and obligations not being
assumed are herein referred to as the “ Excluded
Liabilities ”).
2.05 Assignment of
Contracts and Rights . At Closing, pursuant to the
Assignment and Assumption Agreement, Seller will assign and Buyer
will assume the Assumed Contracts. Seller will use commercially
reasonable efforts to obtain the consent of the parties to the
assignment of the Assumed Contracts as soon as practicable
following the closing (the “ Post-Closing Consents
”), with reasonable assistance as requested by Buyer (but
without any payment of money by Seller or Buyer). If a Post-Closing
Consent is not obtained, or if an attempted assignment thereof
would be ineffective or would adversely affect the rights of Seller
thereunder so that Buyer would not receive all such rights, Seller
may enter into a mutually agreeable arrangement under which Buyer
would obtain the benefits and assume the obligations thereunder in
accordance with this Agreement, including subcontracting,
sublicensing, or subleasing to Buyer, or under which Seller would
enforce for the benefit of Buyer, with Buyer assuming
Seller’s obligations, any and all rights of Seller against a
third party thereto. Buyer acknowledges that the failure to obtain
any Post-Closing Consents or the failure of Buyer to obtain the
benefit of any of the Assumed Contracts shall not constitute a
default by Seller under this Agreement and shall not entitle Buyer
to indemnification under Article VIII.
2.06 Purchase Price
. The purchase price for the Purchased Assets shall be the
consideration set forth below, as adjusted pursuant to
Section 2.07 (as so adjusted, the “ Purchase
Price ”):
(a) $15,000,0000, plus
any Fixed Asset Excess or minus any Fixed Asset Shortfall,
plus the amount of Prepaid Expenses on the Closing Balance Sheet,
payable as follows: (i) $1,000,000 shall be deposited by Buyer
with the Escrow Agent (the “ Escrow
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Amount ”), to be held and
disbursed by the Escrow Agent pursuant to the terms of the
Indemnification Escrow Agreement; and (ii) the balance shall
be paid to Seller in cash by wire transfer to an account or
accounts specified by Seller (the “ Initial Payment
”)
(b) Buyer shall assume the
Assumed Liabilities at Closing;
(c) Seller shall receive
$1,000,000 in shares of Parent’s common stock (“
Parent Stock ”) at Closing, with the number of shares
of Parent Stock determined based on the 60 trading day average
closing price of Parent Stock as reported on NASDAQ immediately
preceding Closing;
(d) Post-Closing, in
accordance with Section 2.07, Buyer or Parent shall pay any
Net Working Capital Excess Amount to Seller or Seller shall pay any
Net Working Capital Shortfall to Buyer; and
(e) Post-Closing, in
accordance with Section 2.08, Buyer or Parent shall pay the
Earn-Out Amount to Buyer.
2.07 Working Capital
and Other Adjustments .
(a) As promptly as possible
and in any event no later ninety (90) days after the Effective
Time, Seller shall prepare or cause to be prepared, and will
deliver to Buyer a balance sheet of Seller as of the Effective
Time, including footnotes thereto (the “ Effective Time
Balance Sheet ”), together with a written statement
setting forth in reasonable detail its determination of the Net
Working Capital, Fixed Assets and Prepaid Expenses as of the
Closing Date. The Effective Time Balance Sheet shall be determined
and computed in accordance with GAAP using the accounting
principles historically utilized by Seller in the preparation of
the Financial Statements. Buyer, its representatives and
accountants shall have reasonable access to the work papers used by
Seller in the preparation of the Effective Time Balance Sheet and
the calculation of the Net Working Capital, Fixed Assets and
Prepaid Expenses for the purposes of verifying the accuracy and
fairness of the preparation of the Effective Time Balance
Sheet.
(b) The Effective Time
Balance Sheet and the Net Working Capital, Net Working Capital
Target, Fixed Asset and Prepaid Expenses calculation shall be
final, conclusive and binding at 5:00 pm, Eastern Time on the
thirtieth (30 th ) day after receipt by Buyer unless Buyer provides a
written notice of its objection (an “ Objection Notice
”) to Seller on or before such time. Any Objection Notice
shall specify in reasonable detail (i) any item on the
Effective Time Balance Sheet, Target Balance Sheet(s) and/or
calculation of Fixed Assets, Prepaid Expenses or the Net Working
Capital which Buyer believes has not been determined and computed
in accordance with this Section 2.07, and (ii) the
correct amount of such item determined in accordance with this
Section 2.07. Any item or amount to which no dispute is raised
in the Objection Notice shall be final, conclusive and binding on
the parties.
(c) During the 10-Business
Day period after receipt of an Objection Notice by Seller, Buyer
and Seller shall work in good faith in an attempt to resolve any
differences that they may have with respect to any matter specified
in the Objection Notice. If, at the end of
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such 10-Business Day period, Buyer and
Seller have not reached agreement on such matters, the matters that
remain in dispute may be submitted by either party to an
Independent Accounting Firm (the “ Referee ”).
Buyer and Seller will instruct the Referee to provide its
determination of the matters in dispute within 45 days after their
submission to the Referee. The parties shall cooperate with each
other and the Referee in connection with the matters contemplated
by this Section 2.07, including by furnishing such information
and access to books, records (including accountants’ work
papers) and personnel as may be reasonably requested. The Referee
shall not hear any oral testimony regarding the matters in dispute,
but may request and accept written submissions. The fees and
expenses of the Referee will be paid equally by Buyer and Seller;
provided , however , that if the Referee determines
that one party has adopted a position or positions with respect to
the determination of applicable Net Working Capital, Net Working
Capital Target, Fixed Assets or Prepaid Expenses in bad faith, the
Referee may, in its discretion, assign a greater portion of any
such fees and expenses to such party. The decision of the Referee
with respect to the items relating to the Effective Time Balance
Sheet, Target Balance Sheets and the Net Working Capital, Fixed
Assets and/or Prepaid Expenses that are disputed in the Objection
Notice shall be final, conclusive and binding on the parties. If an
Objection Notice is timely received by Seller, the Effective Time
Balance Sheet, Target Balance Sheets and Net Working Capital, Fixed
Assets and/or Prepaid Expenses (as revised in accordance with the
clause below), shall become final and binding upon the parties on
the earlier of (x) the date the parties resolve in writing any
differences they have with respect to all matters specified in the
Objection Notice with respect to the statement in question, or
(y) the date all disputed matters with respect to the
statement in question are finally resolved in writing by the
Referee.
(d) Promptly, and in any
event no later than three (3) Business Days after final
determination of the Net Working Capital Target in accordance with
this Section 2.07: (i) if the Net Working Capital is
greater than a $150,000 deficit (a “ Net Working Capital
Excess ”), Buyer shall owe Seller the amount of such Net
Working Capital Excess in cash or other immediately available
funds; and (ii) if the Net Working Capital is less than a
$350,000 deficit (a “ Net Working Capital Shortfall
”), Seller shall owe Buyer the amount of such Net Working
Capital Shortfall in cash or other immediately available funds.
Attached hereto as Annex 2.07(d) is an example of the
calculation pursuant to this Section 2.07(d).
(e) At least three
(3) Business Days prior to Closing, Seller shall provide Buyer
with an estimation of Fixed Assets and Prepaid Expenses, which
amount shall be used to adjust the Purchase Price amount payable at
Closing pursuant to Section 2.06(a). If the Fixed Assets are
greater than $1,750,000 (a “ Fixed Asset Excess
”), Buyer shall owe Seller the amount of such Fixed Asset
Excess in cash or other immediately available funds; and
(ii) if the Fixed Assets are less than $1,750,000 (a “
Fixed Asset Shortfall ”), Seller shall owe Buyer the
amount of such Fixed Asset Shortfall in cash or other immediately
available funds. Attached hereto as Annex 2.07(e) is an
example of the calculation pursuant to this
Section 2.07(e).
(f) Promptly, and in any
event no later than three (3) Business Days after the final
determination of the actual amounts for Fixed Assets and Prepaid
Expenses in accordance with this Section 2.07, Seller or
Buyer, as applicable, taking into account the amounts paid at
Closing with respect to any Fixed Asset Excess, Fixed Asset
Shortfall and estimated Prepaid Expenses, shall pay to the other
party any amount necessary to true-up the Purchase Price amount
based on such actual amounts versus the estimated amounts used to
adjust the Purchase Price at Closing.
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2.08 Earn-Out
. The Seller may earn and the Buyer or Parent shall pay
Earn-out payments as set forth below:
(a) At Closing, the number of
shares of Parent Stock available for potential Earn-out payments
shall be calculated. The “ Earn-out Shares in Play
” shall equal the number of shares of Parent Stock equal to
$3,500,000 divided by the 60 trading day average closing price of
the Parent Stock as reported on NASDAQ immediately preceding
Closing or announcement, whichever is sooner (100% of the Earn-out
Shares in Play shall constitute the “ Earn-out Cap
”);
(b) At the conclusion of each
of the fiscal years ending December 31, 2008, 2009, 2010 and
2011 (each such fiscal year being an “ Earn-out Year
”), the parties shall perform a calculation to determine what
amount of Earn-out payment is due to the Seller. The “
Earn-out Qualifying Amount ” shall mean an amount
equal to 50% of the cumulative amount by which fiscal year Gross
Profit of the Business exceeds $8,800,000 annually, with the first
such period commencing at the Effective Time. For clarity, in the
second Earn-out Year, Seller shall be entitled to 50% of the amount
by which aggregate Gross Profit exceeds $17,600,000, less amounts
paid to Seller the previous Earn-Out Year and in the third Earn-out
Year, Seller shall be entitled to 50% of the amount by which
aggregate Gross Profit exceeds $26,400,000, less amounts paid to
Seller in all previous Earn-Out Years, subject, in all respects, to
the Earn-out Cap and before consideration of the prorated amounts
as noted below. Notwithstanding anything in this Agreement to the
contrary, once Seller is entitled to an Earn-out Payment, Seller
shall have no obligation to repay or refund any portion of such
Earn-out Payment. For purposes of calendar year 2008, the
$8,800,000 Gross Profit shall be prorated at the rate of ten
twelfths or $7,333,333. So that if the actual prorated results
exceed the $7,333,333 then the Seller shall be deemed to have
achieved an Earn-out Qualifying Amount as stated above. Likewise,
calendar year 2011 amounts shall be prorated in a similar manner
except at the rate of two-twelfths.
(c) “ Gross
Profit ” as of a given date shall mean the aggregate
gross profits of the Business in an Earn-out Year, calculated in
the same manner as is reflected as “Gross Profit” in
Seller’s regularly prepared, audited income statements. Buyer
shall prepare a statement of Gross Profit on the same basis and
applying the same accounting principles, policies, and practices
set forth on Schedule 2.08(c) and deliver the statement to
Seller within 90 days of the end of each Earn-out Year. Buyer shall
furnish or cause to be furnished to Seller such work papers,
records, or other documents relating to the applicable calculation
of Gross Profit and Earn Out Amount, and access thereto, as may be
necessary or reasonably appropriate for evaluation of each
calculation.
(d) Buyer or Parent shall
deliver to Seller, at the conclusion of each Earn-out Year, shares
of Parent Stock equal to the {Earn-out Shares in Play x (Earn-out
Qualifying Amount ÷ $3,500,000)}, subject to the Earn-out Cap
(the “ Earn-Out Payment ”). Amounts payable
pursuant to the preceding sentence would be paid on or before the
end of the third calendar month following each applicable 12-month
period of measurement (with any partial year being subject to
proration). For example, if in Earn-out Year 2009, the Gross Profit
of the
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Business is $13,800,000, then
approximately 71.4% of the Shares in Play would be issued. If Gross
Profit of the Business for Earn-out Year 2010 is $10,800,000, then
the balance of the Shares in Play would be issued and the Earn-out
Cap would be attained. These examples assume no proration. At the
request of Seller, Parent Stock shall be issued in the name of each
Selling Shareholder in the percentages set forth on Schedule
2.08(d) . In addition, Seller may distribute to the Selling
Shareholders, in the percentages set forth on Schedule
2.08(d) , Seller’s rights under this Agreement
(e) It is expressly
acknowledged and agreed to by the parties hereto that the inclusion
of the earn-out set forth in this Section 2.08 as part of the
Agreement is a principal term hereof and the opportunity to achieve
the same constitutes substantial consideration for the willingness
of Buyer and Seller to enter into the Agreement and consummate the
transactions contemplated by this Agreement, and the Gross Profits
upon which the Earn-out Amount is predicated was calculated based
on the assumption that the Business would be permitted to continue
to operate after Closing in a manner consistent, in all material
respects, with the way it has historically be operated. In light of
the foregoing, Seller shall immediately be deemed to have earned
the full amount of the Earn-out Cap, and Buyer or Parent shall be
obligated to pay such amount to Seller in accordance with the other
terms of this Section 2.08 if during the Earn-out Period Buyer
shall (i) operate the Business in a manner intended to thwart,
present or manipulate the earnings of the Business in any Earn-out
Year or the Earn-out Amount, (ii) fail to cause the books and
records of the Business to be maintained in a manner as will allow
for the segregation, identification and accounting for expenses and
revenues for the Business in accordance with GAAP applied on a
basis consistent with the preparation of the financial statements
of Seller and otherwise in accordance with the historical practices
of the Business prior to Closing or (iii) not operate the
Business in a manner designed to maximize revenue. If a Change in
Control (as defined in the Parent’s 2007 Equity Incentive
Plan) occurs, then any remaining unearned and unpaid portion of the
Earn-out and the terms of this Section 2.08 shall be assumed
by Buyer’s or Parent’s successor, pursuant to the same
terms and conditions specified herein; provided ,
however , that at Seller’s option, all remaining
amounts under this provision shall be payable in cash.
Notwithstanding the foregoing, any and all decisions regarding the
operations of the Business based on Buyer’s good faith
business judgment shall not be deemed to be violations of the
conditions of this Section 2.08(d).
(f) The Earn-out Payments
shall be paid in restricted Parent Stock, with contractual
restrictions on transfer of such stock not to exceed six months
after issuance. Notwithstanding the preceding, if the market value
of a share of Parent Stock at the time such share is paid pursuant
to this Agreement (looking at each Earn-out Payment separately) is
less than 50% of the value of a share of Parent Stock as determined
based on the 60 trading day average closing price of the Parent
Stock as reported on NASDAQ immediately preceding Closing or
announcement, whichever is sooner, then Seller shall have the
option to elect (by giving written notice to Buyer) to be paid an
amount of cash in lieu of the Parent Stock equal to 50% of the
Earn-out Qualifying Amount. For example, if a share of Parent Stock
is valued at $20 pursuant to Section 2.08(a), and the value of
Parent Stock is $5 per share at the time when such shares are to be
paid as earn-out consideration, then Seller may elect to receive
$500 in cash in lieu of 50 shares of Parent Stock (assuming that
the Earn-out Qualifying Amount is $1,000).
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2.09 Prorations
. All ad valorem, real and personal property Taxes and
assessments, rents, royalties, license and permit fees, utilities,
service fees, and other similar items arising from or relating to
the Purchased Assets or the conduct of the Business, which become
due and payable at or after the Effective Time and relate to
periods both before and after the Effective Time shall be prorated
and adjusted between Buyer and Seller as of the Effective Time on a
per diem basis and Seller shall be responsible for and pay to Buyer
the portion of such amounts allocable to the period or portion
thereof ending on the Effective Time for which payment is due after
the Effective Time at least five (5) Business Days prior to
the date such amounts become due and payable. Any proration of
expenses shall be settled concurrently with the adjustments
contemplated pursuant to Section 2.07 to the extent reasonably
practicable.
2.10 Bulk Transfer
Law . Buyer and Seller hereby waive compliance with the
requirements of any applicable bulk sales law provisions of the
Uniform Commercial Code of the jurisdictions in which the Purchased
Assets are situated or which may otherwise be applicable to the
transactions contemplated hereby.
2.11 Withholding
Taxes . All payments made by Buyer pursuant to or in
connection with this Agreement shall be net of applicable
withholding Taxes, if any.
2.12 New Louisville
Lease . The parties acknowledge that the Louisville
Lease will be terminated, effective as of the Effective Time, and
Buyer and Heumann LLC will enter into the New Louisville Lease,
with respect to the HLLC Real Estate.
2.13 Parent
Stock . The shares of Parent Stock received by
Seller at Closing or in connection with the earn-out described in
Section 2.08 shall be fully vested unregistered shares with
the registration rights described in the Registration Rights
Agreement.
2.14 Deposit
.
(a) Upon execution of this
Agreement, Buyer shall deliver the Deposit to Seller upon execution
of this Agreement.
(b) If a Closing occurs, the
Deposit shall be credited against the amount of cash Purchase Price
payable at Closing.
(c) If (i) this
Agreement is terminated by Seller pursuant to
Section 13.01(b), (ii) this Agreement is terminated by
Seller pursuant to Sections 13.01(d) or (g) and all conditions
to Buyer’s obligation to close in Article XI are satisfied in
all material respects, or (iii) this Agreement is terminated
other than pursuant to Sections 13.01(a), (c), (e) or (f),
then Seller shall be entitled to retain the Deposit and shall
further be entitled to seek additional damages or pursue other
remedies with respect to any breach by Buyer of its obligations
under this Agreement.
(d) If this Agreement is
terminated pursuant to Sections 13.01(a), (c), (e) or (f), and
the failure to close the transactions contemplated by this
Agreement is not as result of Buyer’s material default of its
obligations under this Agreement, then Seller shall immediately
return the Deposit to Buyer.
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ARTICLE III
THE CLOSING
3.01 The Closing
. The Closing shall take place at the offices of Taft
Stettinius & Hollister LLP, Cincinnati, Ohio, at 10:00
a.m., local time on February 29, 2008 or at such other time
and place to which the parties shall mutually agree. The parties
agree that the effective date and time for economic purposes shall
be 12:01 a.m. on March 1, 2008 (the “ Effective
Time ”). Notwithstanding anything in this Agreement to
the contrary, (i) Buyer shall assume and be responsible for
payment and performance with respect to all Assumed Liabilities and
Assumed Contracts and operation of the Business from and after the
Effective Time, and Buyer shall be entitled to all revenues arising
out of the ownership of the Purchased Assets and operation of the
Business from and after the Effective Time.
3.02 Items to Be
Delivered at the Closing by Seller . At the Closing, Seller
shall make, or cause to be made, the following deliveries to
Buyer:
(a) The Bill of Sale, duly
executed by Seller;
(b) The Assignment and
Assumption Agreement, duly executed by Seller;
(c) The Indemnification
Escrow Agreement, duly executed by Seller;
(d) The New Louisville Lease,
duly executed by Heumann LLC;
(e) The Employment
Agreements, duly executed by the applicable employee;
(f) The Domain Name
Assignment Agreement, duly executed by Seller;
(g) The Trademark Assignment
Agreement, duly executed by Seller;
(h) The Patent Assignment,
duly executed by Seller;
(i) The Registration Rights
Agreement;
(j) A payoff letter in
commercially reasonable form from National City Bank, including
authorization for Buyer to file UCC termination statements on its
behalf;
(k) A payoff letter in
commercially reasonable form from METCO, including authorization
for Buyer to file UCC termination statements on its
behalf;
(l) Evidence of the release
of the UCC-1 financing statement filed by FPC Funding II,
LLC;
(m) Evidence of the repayment
and satisfaction of Shareholder Subordinated Debt;
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(n) A certificate from the
Secretary of Seller certifying the incumbency and signatures of the
persons executing this Agreement, the Ancillary Agreements and any
certificates or instruments hereunder and attaching true and
correct copies of (i) Seller’s articles of incorporation
and bylaws, the certificate of formation and operating agreement of
FKI, LLC and articles of association and business license of China
Subsidiary, (ii) the resolutions of Seller’s board of
directors authorizing the execution and delivery by Seller of this
Agreement, the Ancillary Agreements and all instruments and
documents to be delivered in connection herewith and therewith and
consummation of the transactions contemplated hereby and thereby
and (iii) a certificate of existence from the Secretary of
State of Kentucky with respect to the Seller and a certificate of
good standing from the Secretary of State of Delaware with respect
to FKI, LLC, each dated no earlier than ten (10) Business Days
prior to the Closing Date;
(o) Such other instruments
and documents that Buyer reasonably deems necessary to effect the
transactions contemplated hereby; and
(p) Consent Letter from
Auditors For 2005, 2006 and 2007 financials from Seller’s
Auditors.
3.03 Items to Be
Delivered at the Closing by Buyer . At the Closing, Buyer
shall make, or cause to be made, the following deliveries to Seller
or Escrow Agent, as applicable:
(a) The Initial Payment in
immediately available funds;
(b) The Escrow Amount, to the
Escrow Agent, in immediately available funds;
(c) The Assignment and
Assumption Agreement, duly executed by Buyer;
(d) The Indemnification
Escrow Agreement, duly executed by Buyer;
(e) The New Louisville Lease,
duly executed by Buyer;
(f) The Employment
Agreements, duly executed by Buyer;
(g) The Domain Name
Assignment Agreement, duly executed by Buyer;
(h) The Trademark Assignment
Agreement, duly executed by Buyer;
(i) The Patent Assignment,
duly executed by Buyer;
(j) The Registration Rights
Agreement, duly executed by Parent;
(k) A certificate from the
Secretary of Buyer certifying the incumbency and signatures of the
persons executing this Agreement, the Ancillary Agreements and any
certificates or instruments hereunder and attaching true and
correct copies of (i) Buyer’s organizational documents,
(ii) the resolutions of Buyer’s board of directors
authorizing the execution and delivery by Buyer of this Agreement,
the Ancillary Agreements and all
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instruments and documents to be
delivered in connection herewith and therewith and consummation of
the transactions contemplated hereby and thereby and (iii) a
certificate of good standing from the Secretary of State of
Delaware with respect to Buyer dated no earlier than ten
(10) Business Days prior to the Closing Date; and
(l) Such other instruments
and documents that Seller reasonably deems necessary to effect the
transactions contemplated hereby.
ARTICLE IV
REPRESENTATIONS AND
WARRANTIES OF SELLER
Except as set forth in a
disclosure schedule delivered pursuant to this Article IV (“
Disclosure Schedule ”) dated the date hereof and
delivered herewith to Buyer, Seller hereby represents and warrants
to Buyer, as of the date hereof that:
4.01 Seller Existence
and Power . Seller is a corporation duly incorporated and
validly existing under the laws of the Commonwealth of Kentucky,
FKI, LLC is a limited liability company duly formed and validly
existing under the laws of the State of Delaware, and China
Subsidiary is a limited liability company duly organized and
validly existing under the laws of the jurisdiction of its
establishment. Each of the foregoing entities has all requisite
corporate power and authority to own, lease, operate and otherwise
hold its properties and assets and to carry on its business as
presently conducted. Each of the foregoing entities is qualified
and in good standing to transact business in each jurisdiction in
which such qualification is required by law, except for such
jurisdictions where the failure to be so qualified, licensed or in
good standing would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on the
business, assets, financial condition or results of operations of
Seller.
4.02 Corporate
Authorization; Binding Agreement . The execution, delivery
and performance by Seller of this Agreement and each of the
Ancillary Agreements, and the consummation by Seller of the
transactions contemplated hereby and thereby are within
Seller’s corporate powers and have been duly authorized by
all necessary corporate action on the part of Seller. This
Agreement and each Ancillary Agreement to be signed by Seller have
been duly executed and delivered by Seller and constitute valid and
binding agreements of Seller enforceable against Seller in
accordance with their respective terms, except as enforcement
thereof may be limited by the effect of bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium and other similar
laws affecting the rights and remedies of creditors, and the
effects of general principles of equity, whether applied by a court
of law or equity.
4.03
Non-Contravention . The execution, delivery and
performance by Seller of this Agreement and each Ancillary
Agreement, and the consummation of the transactions contemplated
hereby and thereby, will not (a) contravene or conflict with
Seller’s articles of incorporation or bylaws;
(b) contravene or conflict with any material provision of
Applicable Law; (c) constitute a default under any material
Assumed Contract; or (d) result in the creation or imposition
of any Lien on any Purchased Asset.
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4.04 Title to Purchased
Assets . Each of the Seller and China Subsidiary has good
and transferable title to, or valid leasehold interests in, all of
its owned or leased, as applicable, tangible properties and assets.
All of Seller’s assets that are included in the Purchased
Assets and all of the assets of China Subsidiary are free and clear
of all Liens, except for (collectively, the “ Permitted
Liens ”): (i) Liens for current real or personal
property Taxes which are not yet due and payable, (ii) Liens
and rights of third parties disclosed on Schedule 4.04
including pursuant to existing leases, licenses and possession or
occupancy agreements, (iii) worker’s compensation,
carrier’s, materialman’s and other Liens that are
individually and in the aggregate immaterial in character, amount
and extent, and which do not materially detract from the value or
interfere with the present or proposed use of the properties they
affect, and which do not adversely affect the conduct of the
Business as presently conducted or proposed to be conducted,
(iv) zoning, building, fire, health, environmental and
pollution control laws, ordinances, rules and safety regulations
and other similar restrictions, which do not adversely affect the
conduct of the Business as presently conducted, and (v) acts
done, or suffered to be done by, and judgments against, Buyer or
any of its Affiliates and those claiming by, through or under Buyer
or any of its Affiliates. Except for the Excluded Assets, the
Purchased Assets and the assets owned by China Subsidiary include
all assets the Seller and China Subsidiary use to conduct the
Business as it is presently conducted.
4.05 Legal
Proceedings . There is no Legal Proceeding pending, or to
Seller’s Knowledge, threatened against FKI, LLC, China
Subsidiary, the Purchased Assets or any Assumed Liability, or which
in any manner challenges or seeks to prevent, enjoin or materially
delay the transactions contemplated by this Agreement or the
Ancillary Agreements. None of Seller, FKI, LLC, or, to the
Knowledge of Seller, China Subsidiary, is specifically named in any
order, judgment, decree, stipulation or consent of or with any
Governmental Entity that affects or may affect the Purchased
Assets, any Assumed Liability or the transactions contemplated by
this Agreement and the Ancillary Agreements.
4.06 Assumed
Contracts . Schedule 4.06 lists all Open Orders and
Assumed Contracts under which Seller or China Subsidiary
(a) paid $50,000 or more during the 12-month period ended
November 30, 2007 or (b) received $50,000 or more during
the 12-month period ended November 30, 2007. Each of the
Assumed Contracts (i) constitutes the entire agreement by and
between the respective parties thereto with respect to the subject
matter thereof, (ii) is valid and enforceable in accordance
with its terms against Seller or, to the Seller’s Knowledge,
China Subsidiary (as applicable), and to Seller’s Knowledge,
against the other party to the Assumed Contracts, except as
enforcement thereof may be limited by the effect of bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium and
other similar laws affecting the rights and remedies of creditors,
and the effects of general principles of equity, whether applied by
a court of law or equity and except where the lack of
enforceability would not have a Material Adverse Effect on the
Business and (iii) is assignable by Seller to Buyer without
the consent of any other Person, except as otherwise noted on
Schedule 4.06 . Neither Seller nor, to the Seller’s
Knowledge, China Subsidiary is in default under any Assumed
Contract and, to Seller’s Knowledge, no other party or
parties to such Assumed Contract is in default of the terms of any
such Assumed Contract. To Seller’s Knowledge, there are no
renegotiations of, attempts to renegotiate, or outstanding rights
to renegotiate any material amounts paid or payable to Seller under
any Assumed Contract with any person having the contractual or
statutory right to demand
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or require such renegotiation, and no
such person has made written demand for such renegotiation. Neither
Seller nor, to the Seller’s Knowledge, China Subsidiary is in
default under any Assumed Contract and, to Seller’s
Knowledge, no event has occurred or circumstance exists under or by
virtue of any Assumed Contract that (with or without notice or
lapse of time) would cause the creation of any Lien affecting any
of the Purchased Assets, except where such occurrence would not
result in a Material Adverse Effect.
4.07 Customers and
Suppliers .
(a) Schedule 4.07(a)
lists the 10 largest customers of Seller (based on gross sales) for
the most recent fiscal year.
(b) Schedule 4.07(b)
lists the 10 largest suppliers of Seller (based on accounts payable
due to such supplier) for the most recent fiscal year.
4.08 Brokers’ or
Finders’ Fees . Other than NatCity Investments, Inc.,
there is no investment banker, broker, finder or other intermediary
that has been retained by or is authorized to act on behalf of
Seller who is entitled to any fee or commission upon consummation
of the transactions contemplated by this Agreement.
4.09 Compliance with
Laws . Seller has and, to the Knowledge of Seller, China
Subsidiary has, complied in all material respects with all
Applicable Laws that apply to the Seller and China Subsidiary, as
applicable, and neither Seller nor China Subsidiary has received
any written notice asserting any noncompliance with any Applicable
Law from any Person or Governmental Entity having jurisdiction over
it, except where noncompliance would not have a Material Adverse
Effect on the Business. The Seller is not and, to the Knowledge of
Seller, China Subsidiary is not, in default with respect to any
judgment, order, injunction or decree of any Person or Governmental
Entity in any respect material to the transactio
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