anything contained in this Agreement, for purposes of this Agreement, neither Seller, Visador, or either of their parents or subsidiaries is considered an Affiliate of Purchaser.

 

“AGNL Guaranty” shall mean that certain Guaranty Agreement, of even date herewith, by and among Crown Column & Millwork Company, LLC, Seller, Visador, Purchaser and AGNL Coffman, L.L.C.

 

“Agreement” shall have the meaning set forth in the Preamble.

 

“Assets” shall have the meaning set forth in Section 2.1.

 

“Assigned Contracts” shall have the meaning set forth in Section 2.1.1(f).

 

“Assignment and Assumption Agreements” shall have the meaning set forth in Section 5.1(c).

 

“Assignments of Certifications” shall have the meaning set forth in Section 5.1(e).

 

“Assumed Obligations” shall have the meaning set forth in Section 2.3.2.

 

“Assumed Payables” shall mean (other than (i) amounts payable to any Affiliate of Seller, and/or (ii) those accounts payable listed on Schedule 6.3 attached hereto) those accounts payable and accrued expenses of Seller incurred by Seller in the ordinary course of business, consistent with past practices, which reflect bona fide, arm’s-length transactions for goods or services  purchased by Seller, as of the Closing Date, including those Assumed Payables as of the Seller Balance Sheet Date set forth on Schedule 1.3 attached hereto (unless such Assumed Payables have previously been satisfied), and, with respect to all of the forgoing, which are not excluded in calculating Undrawn Availability in the Borrowing Base Certificate submitted under the PNC Credit Agreement as of the Closing Date.

 

“Assumed Warranty Obligations” shall have the meaning set forth in Section 6.1.

 

“Audited Seller Financial Statements” shall have the meaning set forth in Section 3.6(a)(i).

 

“Bill of Sale” shall have the meaning set forth in Section 5.1(a).

 

“Bodies” shall mean all federal, state, local and foreign governmental departments, commissions, boards, bureaus, agencies or instrumentalities and other regulatory bodies.

 

“Books and Records” shall mean all information, files, books, records, data, plans and recorded knowledge.

 

“Business” shall have the meaning set forth in the Recitals.

 

“Business Employee” shall have the meaning set forth in Section 6.4.

 

“Capital Expenditures” means expenditures made or liabilities incurred for the acquisition of any fixed assets or improvements, replacements, substitutions or additions thereto

 

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which in accordance with GAAP, would be classified as capital expenditures, except expenditures made in connection with the replacement, substitutions or restoration of assets (i) to the extent reimbursed or financed from insurance proceeds or condemnation awards; or (ii) to the extent resulting from one or more breaches of any representation, warranty, covenant or agreement by Seller.

 

“Cash” shall mean cash, cash equivalents, marketable securities and other short-term investments.

 

“Cash Dividend” shall mean Cash dividends from Purchaser to any Affiliate of Purchaser, provided, however, that, “Cash Dividend” shall not include (A) any amounts P&F (or any Subsidiary thereof) is required to pay to Citibank in connection with the Closing or (B) any amounts paid and/or payable (i) under and/or pursuant to the Nationwide Consulting Agreement and/or Countrywide Management Agreement, (ii) under and/or pursuant to the PSP Notes or Woodmark Notes, (iii) for or with respect to goods or services rendered by any Affiliate of Purchaser to the extent permitted by Section 2.2.5.4 (g) of this Agreement.

 

“Cash Payment” shall have the meaning set forth in Section 2.2.4(a)(i).

 

“Certifications” shall mean all product certifications and ratings.

 

“Change in Control Transaction” shall mean, with respect to Purchaser or any Parent Company (the “Entity”), except for one or more Non-Qualifying Transactions (each of which is hereby deemed not to constitute a Change in Control Transaction), whether or not in the context of a Liquidation Event (i) a merger or consolidation, (ii) the issuance or transfer of equity of the Entity, or (iii) the sale of substantially all the assets of such Entity.  “Non-Qualifying Transaction” shall mean:  (i) a Termination Transaction entered into, conducted and/or consummated pursuant to, or in accordance with, Section 2.2.5.3, (ii) a transaction between or among any of Purchaser, any one or more Parent Companies (or any one or more Affiliates thereof) or any one or more employee benefit plans (or related trusts) sponsored or maintained by each such Entity or Affiliate of any of them, or (iii) any transaction in which, after giving effect to such transaction, sixty-six and two-thirds (66 2/3%) percent or more of the fully diluted equity interests of such Entity are owned or controlled by (1) the Person(s) which own or control such interests as of the Closing Date, (2) one or more Affiliates thereof, (3) any one or more employee benefit plans (or related trusts) sponsored or maintained by the Entity, such Person(s) or any one or more Affiliates of any of them, or (4) any Persons acquiring such securities in connection with a Non-Qualifying Transaction.  Notwithstanding anything contained in this Agreement, a Non-Qualifying Transaction is hereby deemed not to be a Change in Control Transaction

 

“Claim” shall have the meaning set forth in Section 7.2.3(a).

 

“Claim Notice” shall have the meaning set forth in Section 7.2.3(a).

 

“Closing Date” shall mean the date hereof.

 

“Closing Net Assets” shall be calculated in a manner consistent with the categories of assets and liabilities set forth in Schedule 1.4.

 

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“Closing Statement” shall have the meaning set forth in Section 2.2.2.2.

 

“Closing Year” shall have the meaning set forth in Section 6.2.

 

“Contemporaneous Documents” shall have the meaning set forth in Section 5.3.

 

“Contingency Period” shall mean, the period beginning on the Closing Date and ending upon (i) in the event Contingent Consideration is due and payable to the Seller pursuant to the terms and conditions of this Agreement, the first date of payment, pursuant to the terms and conditions of this Agreement, of any part of Contingent Consideration, (ii) in the event Contingent Consideration is not due and payable to the Seller pursuant to the terms and conditions of this Agreement but Termination Proceeds are due and payable to the Seller, the date on which the first such Termination Proceeds are paid to Seller, (iii) in the event Contingent Consideration is not due and payable pursuant to Section 2.2.5.2(b), the date on which the Four Year Financial Report was delivered to the Seller or (iv) in the event a Change in Control Transaction is consummated, the date thereof.

 

“Contingent Consideration” shall mean the Seller Trigger Three Year Contingent Consideration, the Purchaser Trigger Three Year Contingent Consideration or the Four Year Contingent Consideration, in each case as payable pursuant to Section 2.2.5.

 

“Contract” shall mean any written or oral contract, agreement, lease, purchase order, arrangement, commitment, understanding or obligation.

 

“Contribution Agreement” shall mean collectively (i) that certain Assignment and Assumption Agreement of even date by and between Purchaser and Woodmark, and (ii) that certain Assignment and Assumption Agreement of even date between Purchaser and PSP.

 

“Countrywide Management Agreement” shall have the meaning set forth in Section 5.2(l).

 

“Decree” shall mean any order, injunction, judgment, award or decree.

 

“Deferred Proceeds” shall mean all cash and securities actually received, and as and when received (whether, and to the extent that, payment thereof is deferred, contingent or otherwise delayed or uncertain), by Purchaser or its member(s) directly on account of any Termination Transaction or Change in Control Transaction following the consummation thereof, less any and all Transaction Fees and all liabilities and obligations of Purchaser not assumed by the buyer in such Termination Transaction or Change in Control Transaction.

 

“Delinquent Receivables” shall have the meaning set forth in Section 6.5.

 

“Disputed Items” shall have the meaning set forth in Section 2.2.3.

 

“Division Balance Sheet” shall have the meaning set forth in Section 4.7.

 

“Division Balance Sheet Date” shall have the meaning set forth in Section 4.7.

 

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“EBITDA” shall mean earnings before interest, taxes, depreciation and amortization calculated in accordance with GAAP, applied in the same manner in which it is applied by Purchaser as of the Closing Date notwithstanding any changes in applicable law or accounting practices.

 

“Employee Benefits Plans” shall have the meaning set forth in Section 3.24(a).

 

“Environmental Laws” shall mean any federal, state or local statute, regulation, ordinance, order, decree, or other requirement of law relating to protection of human health or the environment or to the identification, transportation, handling, discharge, emission, treatment, storage, or disposal of any pollutant, contaminant, hazardous or toxic substance or material.  Without limiting the generality of the foregoing, Environmental Laws shall include 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 Federal Water Pollution Control Act, 33 U.S.C. § 1251 et seq .; the Clean Air Act, 42 U.S.C. § 7401 et seq .; the Toxic Substances Control Act, 15 U.S.C. § 261 et seq .; the Safe Drinking Water Act, 42 U.S.C. 43000 (f)  et seq .; the Occupational Safety and Health Act, 29 U.S.C. § 651 et seq .; and the Hazardous Materials Transportation Act, 49 U.S.C. § 1802 et seq ., each as amended; together with the regulations promulgated thereunder, Permits issued thereunder, and analogous state and local statutes, regulations and ordinances.

 

“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended.

 

“Excluded Assets” shall have the meaning set forth in Section 2.1.2.

 

“Financing Lease” shall mean (a) any lease of property (real, personal or mixed), the obligations under which are capitalized on a consolidated balance sheet of Purchaser and its Subsidiaries and (b) any other such lease to the extent that the then present value of the minimum rental commitment thereunder should, in accordance with GAAP, be capitalized on a balance sheet of the lessee.

 

“First Earn-Out Period” shall mean the period commencing on the second anniversary of the Closing Date and ending on the date immediately preceding the Three Year Anniversary.

 

“Fixed Assets” shall mean, as of the Closing Date, (i) all machinery, equipment, tools, supplies, office equipment, vehicles, forklifts, racking storage, furniture and fixtures (including all such items as set forth on the Seller Balance Sheet, with additions thereto (net of dispositions in the ordinary course of business)), (ii) all the replacements and improvements for any of the foregoing owned or leased by Seller, (iii) any rights of Seller to the warranties and licenses received from manufacturers and sellers of the aforesaid items, and (iv) any related claims, credits, and rights of recovery and set-off with respect thereto.

 

“Four Year Acceptance Notice” shall mean written notice from Seller to Purchaser in, or substantially in, the form of Exhibit A attached hereto and made a part hereof.

 

“Four Year Anniversary Date” shall mean the fourth anniversary of the Closing Date.

 

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“Four Year Contingent Consideration” shall mean (i) the product obtained by multiplying (A) the Adjusted EBITDA for the Second Earn-Out Period, by (B) five (5.0), (ii) subtracting from such product Total Indebtedness as of the last day of the Second Earn-Out Period, (iii) adding to such product any (A) Cash Dividends made during the period commencing on the Closing Date and terminating on the last day of the Second Earn-Out Period and (B) Purchaser’s Cash as of the last day of the Second Earn-Out Period and (iv) multiplying the amount resulting from the calculations set forth in sub-clauses (i) through (iii), inclusive, of this definition by forty-two one hundredths (.42).

 

“Four Year Dispute Notice” shall mean written notice from Seller to Purchaser in, or substantially in, the form of Exhibit B attached hereto and made a part hereof.

 

“Four Year Financial Report” shall mean (i) Purchaser’s financial statements, including only a statement of operations, balance sheet and notes thereto (prepared in accordance with GAAP in the same manner in which it is applied by Purchaser as of the Closing Date notwithstanding any changes in applicable law or accounting practices) for the Second Earn-Out Period, and (ii) a written report of Purchaser’s calculation of the Four Year Contingent Consideration and the details thereof.

 

“Four Year Mandatory Acceptance Notice” shall mean written notice from Purchaser to Seller in, or substantially in, the form of Exhibit C attached hereto and made a part hereof.

 

“Four Year Mandatory Rejection Notice” shall mean written notice from Purchaser to Seller in, or substantially in, the form of Exhibit D attached hereto and made a part hereof.

 

“Four Year Option Date” shall mean 5:00 p.m., local New York time, on a date that is not more than 60 days following Seller’s receipt of the Four Year Financial Report; provided , however , that, in the event of a Four Year Dispute Notice being sent pursuant to Section 2.2.5.2(a)(ii) of this Agreement, for purposes of Section 2.2.5.2(d) of this Agreement, “Four Year Option Date” shall mean a date that is 30 days following Purchaser’s receipt of the Independent Accountant’s written determination pursuant to Section 2.2.3 of this Agreement.

 

“Four Year Trigger Date” shall have the meaning set forth in Section 2.2.5.2 (a).

 

“GAAP” shall mean United States generally accepted accounting principles.

 

“Guaranty Notes” shall mean that certain Promissory Note A and Promissory Note B which may potentially be issued in connection with the Carousel Guaranty (as such term is defined in the PNC Credit Agreement).

 

“Hazardous Substance” shall mean any hazardous substance, hazardous waste, toxic substance, pollutant, contaminant, petroleum or any fraction thereof, and any other substance regulated under Environmental Laws.

 

“Indebtedness” shall mean, with respect to any Person (and such Person’s Subsidiaries), at a particular date, the sum (without duplication) at such date of (a) indebtedness for borrowed money or for the deferred purchase price of property or services in respect of which such Person is liable as obligor, (b) indebtedness secured by any Lien on any property or asset owned or held

 

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by such Person regardless of whether the indebtedness secured thereby shall have been assumed by or is a primary liability of such Person, (c) obligations of such Person under Financing Leases, (d) the face amount of all letters of credit issued for the account of or upon the application of such Person and, without duplication, the unreimbursed amount of all drafts drawn thereunder, (e) obligations (in the nature of principal or interest) of such Person in respect of acceptances or similar obligations issued or created for the account of such Person, and (f) such other interest bearing items as are required or permitted to be classified as liabilities upon a balance sheet of such person prepared in accordance with GAAP.

 

“Indemnification Threshold” shall have the meaning set forth in Section 7.3.

 

“Indemnified Purchaser Party” shall have the meaning set forth in Section 7.2.1.

 

“Indemnified Seller Party” shall have the meaning set forth in Section 7.2.2.

 

“Independent Accountant” shall have the meaning set forth in Section 2.2.3.

 

“Intangible Assets” shall mean all intangible personal property rights used or arising in connection with the Business, including, phone numbers, fax numbers, websites, domain names, email accounts and the name “Coffman” or any derivative or variation thereof.

 

“Intellectual Property” shall mean all patents, trademarks, service marks, copyrights, trade dress, trade names, logos, and other intellectual property rights, registered or unregistered, all applications relating to the registration of any of the foregoing, all licenses and sublicenses granted and obtained with respect thereto, all rights thereunder, all remedies against infringements thereof, and all rights to protection of interests therein.

 

“Intellectual Property and Intangible Asset Assignment” shall have the meaning set forth in Section 5.1(b).

 

“Inventory” shall mean, as of the Closing Date, (i) all of the finished goods, raw materials, work in progress and inventoriable supplies owned by Seller (including all such items as set forth on the Seller Balance Sheet, with additions thereto (net of dispositions in the ordinary course of business)) and (ii) any and all rights of Seller to the warranties received from its suppliers with respect to such inventory and related claims, credits, and rights of recovery and set-off with respect thereto, including the Inventory as of the Seller Balance Sheet Date set forth on Schedule 3.13 attached hereto (net of dispositions in the ordinary course of business).

 

“Inventory Count” shall have the meaning set forth in Section 2.2.2.1.

 

“Investment Bank” shall have the meaning set forth in Section 2.2.5.3(a).

 

“Knowledge” shall have the meaning set forth in Section 8.7.

 

“Lease” shall have the meaning set forth in Section 3.32(a).

 

“Leased Real Property” shall have the meaning set forth in Section 3.32(a).

 

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“Letter of Credit Notes” shall mean that certain Promissory Note A and Promissory Note B which may potentially be issued in connection with the NY Commercial Bank Letters of Credit (as such term is defined in the PNC Credit Agreement).

 

“Lien” shall mean any mortgage, pledge, security interest, encumbrance, lien (statutory or other) or conditional sale agreement.

 

“Liquidation” shall have the meaning set forth in Section 2.2.5.3(e).

 

“Liquidation Event” shall mean the voluntarily liquidation, winding-up or dissolution, commencement of any case, proceeding or other action by the Purchaser under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it bankrupt or insolvent, or seeking reorganization, composition, extension or other such relief with respect to it or its debts, or seeking appointment of a receiver, trustee, custodian or other similar official for all or substantially all of its assets.

 

“Listed Agreements” shall have the meaning set forth in Section 3.16.

 

“Listed Intellectual Property Agreements” shall have the meaning set forth in Section 3.11(a).

 

“Listed Purchaser Intellectual Property Agreements” shall have the meaning set forth in Section 4.10.

 

“Losses” shall have the meaning set forth in Section 7.2.1.

 

“Marion Lease” shall mean that certain lease agreement, dated as of March 30, 2007, among AGNL Coffman, L.L.C., Visador and Seller, as amended by that certain First Amendment to Lease Agreement of even date, among AGNL Coffman, L.L.C.  and Purchaser.

 

“Nationwide Consulting Agreement” means that certain Consulting Agreement of even date by and between Nationwide Industries, Inc.  and Purchaser.

 

“Net Asset Ceiling” shall mean $10,827,000 less checks outstanding at Closing to unaffiliated third parties for goods or services purchased by Seller in the ordinary course of business, consistent with past practice, in bona fide arms length transactions.

 

“Net Asset Floor” shall mean $10,327,000 less checks outstanding at Closing to unaffiliated third parties for goods or services purchased by Seller in the ordinary course of business, consistent with past practice, in bona fide arms length transactions.

 

“Obsolete Inventory” shall mean, as of the Closing Date, (i) Seller’s obsolete finished goods, raw materials, work in progress and inventoriable supplies calculated in accordance with Seller’s past practices, including those as of the Seller Balance Sheet Date listed on Schedule 1.5 attached hereto (net of dispositions in the ordinary course of business), and (ii) any and all rights of Seller to the warranties received from its suppliers with respect to such inventory and related claims, credits, and rights of recovery and set-off with respect thereto.

 

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“Occurrence” shall have the meaning set forth in Section 3.33(b).

 

“Other Pension Plans” shall have the meaning set forth in Section 3.24(c).

 

“Outstanding Amount” shall have the meaning set forth in Section 6.5.

 

“P&F” shall mean P&F Industries, Inc., a Delaware corporation.

 

“Parent Company” shall mean an entity, other than P&F, that, directly or indirectly, either (i) owns 50% or more of the fully diluted equity interests of Purchaser, (ii) has the power to vote 50% or more of the equity interests having ordinary voting power for the election of directors (or the individuals performing similar functions) of Purchaser or (iii) has the power to direct or cause the direction of the management and policies of Purchaser by contract or otherwise.

 

“Pension Plans” shall have the meaning set forth in Section 3.24(b).

 

“Permits” shall mean all permits, licenses, orders, franchises, certificates, registrations and approvals.

 

“Permitted Indebtedness” shall have the meaning set forth in Section 2.2.5.4(c).

 

“Permitted Liens” means such of the following as to which no enforcement, collection, execution, levy or foreclosure proceeding shall have been commenced:  (i) Liens for Taxes, assessments, and governmental charges or levies not yet due and payable and which are being contested in good faith; (ii) materialmen’s, mechanics’, carriers’, workmen’s and repairmen’s Liens and other similar Liens arising in the ordinary course of business securing obligations that are not yet due; and (iii) Liens arising under conditional sales contracts and equipment leases with third parties entered into in the ordinary course of business; and, in each case, which do not, and would not reasonably be expected to, individually or in the aggregate, materially adversely affect the value of or the continued use of, the Assets in the same or similar manner as such are currently being used by, or materially impairs the operations of, Seller (and with respect to Purchaser, the Purchaser Assets in the same or similar manner as such are currently being used by, or materially impairs the operations of, Purchaser).

 

“Person” shall mean any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization or other entity, including any agency, division, subdivision, audit group or procuring office of a government, whether domestic or foreign, national, state or local.

 

“PNC” shall mean PNC Bank, National Association.

 

“PNC Credit Agreement” shall mean that certain Revolving Credit, Term Loan and Security Agreement of even date between Purchaser and PNC, as lender and agent, or any successor or replacement credit facility entered into by Purchaser on prevailing market terms and in an amount not to exceed the aggregate outstanding amounts plus the then-current unused availability under the PNC Credit Agreement as of the time such credit facility is entered into.

 

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“Product Liability Lawsuits” shall have the meaning set forth in Section 3.33(a)(i).

 

“Products” shall have the meaning set forth in Section 3.33(a)(i).

 

“PSP” shall have the meaning set forth in Section 4.2.

 

“PSP Division” shall have the meaning set forth in Section 4.6(a)(i).

 

“PSP A Note” means that certain Promissory Note of even date made payable by the Purchaser to the order of PSP in the original principal amount set forth therein.

 

“PSP B Note” means that certain Promissory Note of even date made payable by the Purchaser to the order of PSP in the original principal amount set forth therein.

 

‘PSP Notes” means the PSP A Note and the PSP B Note.

 

“Purchase Price” shall have the meaning set forth in Section 2.2.1.

 

“Purchaser” shall have the meaning set forth in the Preamble.

 

“Purchaser Assets” means the assets of the Woodmark Division and PSP Division acquired by Purchaser pursuant to the Contribution Agreement.

 

“Purchaser Business” means the business conducted by the Woodmark Division and PSP Division immediately prior to the execution and delivery of the Contribution Agreement.

 

“Purchaser EBITDA” shall mean the EBITDA of Purchaser for any period, adjusted as follows:  (i) Purchaser EBITDA shall be computed without regard to “extraordinary items” of gain or loss as that term is defined in GAAP; (ii) Purchaser EBITDA shall not include extraordinary SG&A expenses unless consented to by Seller, which consent shall not be unreasonably withheld or delayed (and shall not include any profits related thereto or associated therewith) incurred by Purchaser during the First Earn-Out Period or the Second Earn-Out Period which are inconsistent with the conduct of the business established during the first two years of the Contingency Period; (iii) Purchaser EBITDA shall not include any revenue, profit or loss from extraordinary sales of goods or services by Purchaser; (iv) Purchaser EBITDA shall not include all startup operating expenditures and profits related to or associated with Purchaser establishing any new facility during either the First Earn-Out Period or the Second Earn-Out Period, as applicable unless consented to by Seller, which consent shall not be unreasonably withheld or delayed; (v) Purchaser EBITDA shall be computed consistently in the same manner in which it is computed as of the Closing Date regardless of any changes in applicable law or accounting practices; and (vi) Purchaser EBITDA shall not include any gains, losses or profits realized from goods or services sold by Purchaser to its Affiliates or vice versa ; provided , however , that notwithstanding any provision of this Agreement, Seller acknowledges and agrees that there shall be no restriction or limitation upon Purchaser’s ability to enter into arm’s-length commercial transactions of any nature or magnitude with its Affiliates, and Purchaser may, but shall not be obligated to, enter into any such transactions in its sole and absolute discretion which shall be final, conclusive and binding.

 

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“Purchaser Financial Statements” shall have the meaning set forth in Section 4.6(a)

 

“Purchaser Fixed Assets” shall mean, with respect to the Purchaser Assets, (i) all machinery, equipment, tools, supplies, office equipment, vehicles, forklifts, racking storage, furniture and fixtures (including all such items as set forth on the Division Balance Sheet, with additions thereto (net of dispositions in the ordinary course of business)), (ii) all the replacements for any of the foregoing owned or leased by Purchaser, (iii) any rights of Purchaser to the warranties and licenses received from manufacturers and sellers of the aforesaid items, and (iv) any related claims, credits, and rights of recovery and set-off with respect thereto.

 

“Purchaser General Maximum Limitation” shall mean:  (i) during the period commencing on the Closing Date and ending on the date immediately preceding the first anniversary of the Closing Date, Two Million ($2,000,000) Dollars, (ii) during the period commencing on the first anniversary of the Closing Date and ending on the date immediately preceding the second anniversary of the Closing Date, One Million Five Hundred Thousand ($1,500,000) Dollars, and (iii) on and after the third anniversary of the Closing Date, One Million ($1,000,000) Dollars;

 

“Purchaser Intellectual Property” shall have the meaning set forth in Section 4.10.

 

“Purchaser Inventory” shall mean those items described on Schedule 4.12(a) attached hereto.

 

“Purchaser Knowledge Group” shall have the meaning set forth in Section 8.7.

 

“Purchaser Obsolete Inventory” shall mean (i) all of the finished goods, raw materials, work in progress and inventoriable supplies listed on Schedule 4.12(b) attached hereto, and (ii) any and all rights of Purchaser to the warranties received from its suppliers with respect to such inventory and related claims, credits, and rights of recovery and set-off with respect thereto.

 

“Purchaser Trigger Three Year Contingent Consideration” shall mean (i) the product obtained by multiplying (A) the Adjusted EBITDA for the First Earn-Out Period, by (B) five and five tenths (5.5), (ii) subtracting from such product Total Indebtedness as of the last day of the First Earn-Out Period, and (iii) adding to such product any (A) Cash Dividends made during the period commencing on the Closing Date and terminating on the last day of the First Earn-Out Period and (B) Purchaser’s Cash as of the last day of the First Earn-Out Period and (iv) multiplying the amount resulting from the calculations set forth in sub-clauses (i) through (iii), inclusive, of this definition by forty-two one hundredths (.42).

 

“Rebates” shall mean rebates, credits and allowances.

 

“Record Date” shall have the meaning set forth in Section 6.5.

 

“Retained Liabilities” shall have the meaning set forth in Section 2.3.1.

 

“Retrofits” shall have the meaning set forth in Section 3.33(a)(iii).

 

“Sale Period” shall have the meaning set forth in Section 2.2.5.3(a).

 

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“Second Earn-Out Period” shall mean the period commencing on the Three Year Anniversary Date and ending on the date immediately preceding the Four Year Anniversary Date.

 

“Seller” shall have the meaning set forth in the Preamble.

 

“Seller Balance Sheet” shall have the meaning set forth in Section 3.7(a).

 

“Seller Balance Sheet Date” shall have the meaning set forth in Section 3.7(a).

 

“Seller Financial Statements” shall have the meaning set forth in Section 3.6(a).

 

“Seller General Maximum Limitation” shall mean:  as of the day any indemnification payment is due and payable under Article VII (whether by offset, withholding, deduction or otherwise) (1) provided a Change in Control Transaction has not been consummated:  (i) the aggregate amount of:  (A) an amount equal to all amounts payable, whether or not due, under the Seller Note, including the aggregate amount of principal and interest outstanding, as of the date a final, binding and non-appealable order of a court of competent jurisdiction is rendered relative to each Claim with respect to which the Seller General Maximum Limitation is being calculated (in each instance, the “Judgment Date”), (B) an amount equal to all amounts payable, whether or not due, under the Visador Management Agreement, to Visador as of the applicable Judgment Date, (C) an amount equal to Five Million ($5,000,000) Dollars during the period commencing on the Closing Date and ending on the date immediately preceding the first anniversary of the Closing Date, which amount shall be reduced to Three Million Three Hundred Thirty-Three Thousand Three Hundred Thirty-Three ($3,333,333) Dollars during the period commencing on the first anniversary of the Closing Date and ending on the date immediately preceding the second anniversary of the Closing Date, and which amount shall be reduced to One Million Six Hundred Sixty-Six Thousand Six Hundred Sixty-Seven ($1,666,667) Dollars on and after the second anniversary of the Closing Date, and (D) an amount equal to any purchase price adjustment pursuant to Section 2.2.2.3; and (2) in the event that a Change in Control Transaction has been consummated:  in the event of any escrow agreed to by Purchaser for the benefit of a third party in such Change in Control Transaction, Seller’s Portion of any such escrow, provided that Seller’s Portion shall not exceed the lesser of (i) ten (10%) percent of the Change in Control Consideration received by Seller and (ii) Seven Hundred Fifty Thousand ($750,000) Dollars (in each case, the “Seller Holdback”).

 

“Seller Holdback” shall have the meaning set forth in the definition of “Seller General Maximum Limitation.”

 

“Seller Knowledge Group” shall have the meaning set forth in Section 8.7.

 

“Seller Note” shall have the meaning set forth in Section 2.2.4(a)(ii).

 

“Seller Trigger Three Year Contingent Consideration” shall mean (i) the product obtained by multiplying (A) the Adjusted EBITDA for the First Earn-Out Period, by (B)(1) four (4.0), in the event the Adjusted EBITDA for the First Earn-Out Period is Two Million Two Hundred Fifty Thousand Dollars ($2,250,000) or less, (2) four and twenty-five one hundredths (4.25), in the event the Adjusted EBITDA for the First Earn-Out Period is greater than Two

 

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Million Two Hundred Fifty Thousand Dollars ($2,250,000) and less than Three Million Fifty-Eight Thousand Dollars ($3,058,000) or (3) four and five tenths (4.5), in the event Adjusted EBITDA for the First Earn-Out Period is equal to or greater than Three Million Fifty-Eight Thousand Dollars ($3,058,000), (ii) subtracting from such product Total Indebtedness as of the last day of the First Earn-Out Period, and (iii) adding to such product any (A) Cash Dividends made during the period commencing on the Closing Date and terminating on the last day of the First Earn-Out Period and (B) Purchaser’s Cash as of the last day of the First Earn-Out Period and (iv) multiplying the amount resulting from the calculations set forth in sub-clauses (i) through (iii), inclusive, of this definition by forty-two one hundredths (.42).

 

“Seller’s Portion” shall mean forty-two (42%) percent, payable in kind in the same proportion received by Purchaser and/or Purchaser’s direct or indirect equityholders.

 

“Subordination Agreement” shall have the meaning set forth in Section 5.1(n).

 

“Subsidiary” shall mean each corporation, partnership, limited liability company and other business entity controlled by a Person.  (As used herein, “controlled by” means (i) the ownership of not less than fifty (50%) percent of the voting securities or other interests of a corporation, partnership, limited liability company or other business entity, or (ii) the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a corporation, partnership, limited liability company or other business entity, whether through ownership of voting shares, by contract or otherwise).

 

“Survival Termination Date” shall mean, (A) in the event that a Change in Control Transaction is not consummated, the latter of:  (i) in the event that Seller Trigger Three Year Contingent Consideration is due and payable to Seller pursuant to the provisions of Section 2.2.5.1 of this Agreement, the date the payment Seller Trigger Three Year Contingent Consideration is due and payable to Seller pursuant to the provisions of Section 2.2.5.1 of this Agreement, (ii) in the event that Purchaser Trigger Three Year Contingent Consideration is due and payable to Seller pursuant to the provisions of Section 2.2.5.1 of this Agreement, the date the Purchaser Trigger Three Year Contingent Consideration is due and payable to Seller pursuant to the provisions of Section 2.2.5.1 of this Agreement, (iii) in the event that no Four Year Contingent Consideration is due and payable to Seller pursuant to the provisions of Section 2.2.5.2 (b) of this Agreement, the date the Four Year Contingent Consideration Report is delivered to Seller pursuant to the provisions of Section 2.2.5.2 (b) of this Agreement, (iv) in the event that Four Year Contingent Consideration is due and payable to Seller pursuant to the provisions of Section 2.2.5.2 of this Agreement, the date the Four Year Contingent Consideration is due and payable to Seller pursuant to the provisions of Section 2.2.5.2 of this Agreement, or (v) in the event that any Termination Proceeds are due and payable to Seller pursuant to the provisions of Section 2.2.5.3 of this Agreement, the date the Termination Proceeds are due and payable to Seller pursuant to the provisions of Section 2.2.5.3 of this Agreement, or (B) subject to the provisions of Section 7.4(b) of this Agreement, in the event that a Change in Control Transaction is consummated, (i) if such Change of Control Transaction is consummated prior to the Three Year Anniversary Date, the earlier of (a) twelve months after the closing date of the Change in Control Transaction or (b) the Three Year Anniversary Date and (ii) if such Change of Control Transaction is consummated on or after the Three Year Anniversary Date, the closing date of the Change of Control Transaction.

 

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“Taxes” shall mean all federal, state, local and foreign taxes, however denominated, including any interest, penalties or additions to tax that may become payable in respect thereof, imposed by any governmental body, which taxes shall include all income taxes, payroll and employee withholding taxes, unemployment insurance, social security, sales and use taxes, utility taxes, excise taxes, franchise taxes, capital stock taxes, gross receipts taxes, occupation taxes, real and personal property taxes, value added taxes, stamp taxes, transfer taxes, gains taxes, worker’s compensation taxes and other obligations of the same or a similar nature, whether arising before, on or after the Closing Date.

 

“Termination Date” shall have the meaning set forth in Section 6.4.

 

“Termination Proceeds” shall mean all cash and securities actually received by Purchaser or its member(s) directly on account of any Termination Transaction or Change In Control Transaction upon the consummation thereof, less any and all Transaction Fees and all liabilities and obligations of Purchaser not assumed by the buyer in such Termination Transaction or Change in Control Transaction.  In the event of a Change in Control Transaction that includes entities or assets in addition to, or in lieu of, the assets or equity of Purchaser, the Termination Proceeds shall be deemed to be the imputed value of Purchaser in such Change in Control Transaction.

 

“Termination Transaction” shall mean, except for a Non-Qualifying Transaction, whether or not in connection with a Liquidation, the sale of substantially all of the assets, sale of all outstanding equity securities, merger or consolidation of Purchaser in accordance with Section 2.2.5.3.

 

“Texas Sublease” shall mean that certain Sublease Agreement, of even date herewith, between Seller, as sublessor, and Purchaser, as sublessee, with respect to the premises known as “Building 6” within Arlington Industrial Park, Arlington, Texas.

 

“Three Year Acceptance Notice” shall mean written notice from Seller to Purchaser in, or substantially in, the form of Exhibit E attached hereto and made a part hereof.

 

“Three Year Anniversary Date” shall mean the third anniversary of the Closing Date.

 

“Three Year Dispute Notice” shall mean written notice from Seller to Purchaser in, or substantially in, the form of Exhibit F attached hereto and made a part hereof.

 

“Three Year Financial Report” shall mean (i) Purchaser’s financial statements, including at least a statement of operations, balance sheet and notes thereto (prepared in accordance with GAAP applied in the same manner in which it is applied by Purchaser as of the Closing Date notwithstanding any changes in applicable law or accounting practices) for the First Earn-Out Period (with such other information as Purchaser may determine its sole and absolute discretion which shall be final, conclusive and binding), and (ii) a written report of Purchaser’s calculation of the Seller Trigger Three Year Contingent Consideration, the Purchaser Trigger Three Year Contingent Consideration, and the details thereof.

 

“Three Year Option Date” shall mean 5:00 p.m., local New York time, on a date that is not more than sixty (60) days following Seller’s receipt of the Three Year Financial Report;

 

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provided, however, that, in the event of a Three Year Dispute Notice being sent pursuant to Section 2.2.5.1(a)(iii) of this Agreement, for purposes of Section 2.2.5.1(d) or Section 2.2.5.1(g) of this Agreement, “Three Year Option Date” shall mean a date that is thirty (30) days following Purchaser’s receipt of the Independent Accountant’s written determination pursuant to Section 2.2.3 of this Agreement.

 

“Three Year Rejection Notice” shall mean written notice from Seller to Purchaser in, or substantially in, the form of Exhibit G attached hereto and made a part hereof.

 

“Total Indebtedness” shall mean the Indebtedness of the Purchaser (including any Subsidiaries).

 

“Transaction Fees” shall mean (i) all Losses reasonably incurred by Purchaser, its member(s) and its and their Affiliates, directly or indirectly, in any way relating to (A) a Termination Transaction, and/or (B) all efforts, including Actions, commenced by or on behalf of such Persons to enforce any rights against the buyer, other counter-party or third party relative to any Termination Transaction, including, with respect to the collection of Termination Proceeds, Deferred Proceeds and/or any Losses incurred by Purchaser its member(s) or its or their Affiliates; (ii) all break-up fees, topping fees and similar fees paid or payable by Purchaser with respect to a Termination Transaction (iii) all Losses incurred by any Person, other than Purchaser, its member(s) or its or their Affiliates, which Purchaser, its member (s) or its or their Affiliates pays, are required or agree to pay, and (iv) all Losses incurred by Purchaser, its member(s) or its or their Affiliates which as of the date any payment to Seller would otherwise be due is unpaid by such Person; without limiting the generality of the foregoing, Transaction Fees shall include any of the above described amounts relative to every Termination Transaction, whether consummated or not.

 

“Transferred Employee” shall have the meaning set forth in Section 6.4(a).

 

“Unaudited Seller Financial Statements” shall have the meaning set forth in Section 3.6(a)(ii).

 

“Undrawn Availability” shall have the meaning ascribed to such term in the PNC Credit Agreement.

 

 “Virginia Sublease” shall mean that certain Sublease Agreement, of even date herewith, between Purchaser, as sublessor, and Visador, as sublessee, with respect to the premises known as 320 Johnston Road, Marion, Virginia, 24354.

 

“Visador” shall mean Visador Holding Corporation.

 

“Visador Consulting Agreement” shall have the meaning set forth in Section 5.1(f).

 

“Visador Management Agreement” shall have the meaning set forth in Section 5.1(g).

 

“W.A.R.N.”  shall mean the Worker Adjustment and Retraining Notification Act, as codified at 29 U.S.C., §§ 2101-2109, and the regulations promulgated thereunder.

 

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“W.A.R.N.  Liabilities” shall have the meaning set forth in Section 6.4(d).

 

“Welfare Plans” shall have the meaning set forth in Section 3.24(d).

 

“Woodmark” shall have the meaning set forth in Section 4.2.

 

“Woodmark Division” shall have the meaning set forth in Section 4.6(a)(i).

 

“Woodmark A Note” means that certain Promissory Note of even date made payable by Purchaser to Woodmark in the original principal amount set forth therein.

 

“Woodmark B Note” means that certain Promissory Note of even date made payable by Purchaser to Woodmark in the original principal amount set forth therein.

 

“Woodmark Notes” means the Woodmark A Note and the Woodmark B Note.

 

ARTICLE II
PURCHASE AND SALE

 

2.1                                Purchase and Sale of Assets .  Upon and subject to the terms and conditions of this Agreement, Seller hereby grants, sells, conveys, assigns, transfers and delivers to Purchaser, and Purchaser hereby purchases and accepts from Seller, for the Purchase Price and in reliance on the representations, warranties and covenants of Seller contained herein, all of the right, title and interest of Seller in and to all of Seller’s assets, properties and rights (other than the Excluded Assets), wherever located (collectively, the “Assets”), free and clear of all Liens other than Permitted Liens.

 

2.1.1                      Included Assets .  The Assets shall include all of the right, title and interest of Seller in and to the following assets, properties and rights as of the Closing Date (but excluding the Excluded Assets):

 

(a)                                   all Accounts;

 

(b)                                  all Inventory and Obsolete Inventory;

 

(c)                                   all prepaid expenses;

 

(d)                                  all security deposits;

 

(e)                                   all Fixed Assets, including the Fixed Assets set forth on Schedule 3.17 attached hereto;

 

(f)                                     all rights of Seller under Contracts (such Contracts collectively, the “Assigned Contracts”), including the Contracts listed and described on Schedule 3.16 attached hereto;

 

(g)                                  all Intellectual Property, including the Intellectual Property set forth on Schedule 3.11(a) attached hereto;

 

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(h)                                  all Intangible Assets, including the Intangible Assets set forth on Schedule 3.11(b) attached hereto;

 

(i)                                      all rights of Seller under all Permits, including the Permits set forth on Schedule 3.20(a) attached hereto;

 

(j)                                      all Certifications, including the Certifications set forth on Schedule 3.20(b) attached hereto;

 

(k)                                   all of Seller’s documents, files, records, lists and correspondence, wherever located, and in whatever medium, whether hard copy, electronic or otherwise, including all of Seller’s purchase, marketing and sales records, customer and supplier records and lists, customer data, production records, pricing and cost information, manuals, business and marketing plans and proposals, trade secrets, and any confidential information (whether such confidential information has been reduced to writing or is in electronic format or otherwise);

 

(l)                                      all of Seller’s rights and choses in action, including all rights under express or implied warranties from suppliers and vendors and all rights to receive insurance proceeds;

 

(m)                                all technical information, data, specifications, research and development information, engineering drawings, operating and maintenance manuals and other know-how;

 

(n)                                  all of Seller’s goodwill associated with the Business;

 

(o)                                  all of Seller’s Books and Records; and

 

(p)                                  all other tangible and intangible assets, properties and rights of Seller.

 

2.1.2                      E xcluded Assets .  Notwithstanding the foregoing, the Assets shall not include any of the following assets, properties or rights (the “Excluded Assets”):

 

(a)                                   Seller’s cash and cash equivalents;

 

(b)                                  Seller’s rights under this Agreement and the Additional Transaction Documents;

 

(c)                                   Seller’s minute books, organizational documents and tax returns;

 

(d)                                  Seller’s Books and Records relating exclusively to any Excluded Asset or Retained Liability;

 

(e)                                   Seller’s rights and choses in action relating exclusively to any Excluded Asset or Retained Liability; and

 

(f)                                     Seller’s right to receive any income Tax refunds.

 

2.1.3                      Third Party Consents .  To the extent that Seller’s rights under any Contract, Permit or other Asset to be assigned to Purchaser hereunder may not be assigned without the

 

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consent of another Person which has not been obtained, this Agreement shall not constitute an agreement to assign the same if an attempted assignment would constitute a breach thereof or be unlawful, and Seller, at its expense, shall use commercially reasonable efforts to obtain any such required consent(s) as promptly as possible.  If any such consent shall not be obtained or if any attempted assignment would be ineffective or would impair Purchaser’s rights in and to the Asset in question so that Purchaser would not in effect acquire the benefit of all such rights, Seller, to the maximum extent permitted by law and the Asset, shall, at Purchaser’s request, without charge, cooperate with Purchaser in any other reasonable arrangement designed to provide such benefits to Purchaser.  Nothing in this Section shall limit or affect the representations contained in Section 3.4.

 

2.2                                Purchase Price .

 

2.2.1                      Purchase Price .  The purchase price for the Assets (the “Purchase Price”) shall be (subject to adjustment as provided in Section 2.2.2 of this Agreement):

 

(a)                                   Eight Million Five Hundred Thousand ($8,500,000) Dollars ;

 

(b)                                  the Contingent Consideration, Termination Proceeds and Deferred Proceeds, as applicable; and

 

(c)                                   Purchaser’s assumption of the Assumed Payables to the extent provided in Section 2.3 of this Agreement.

 

2.2.2                      I nventory; Closing Report; Purchase Price Adjustment .

 

2.2.2.1                      Inventory .  A physical count of the Inventory will be taken no later than June 30, 2009, and rolled back to the Closing Date in a manner consistent with Seller’s past practices (the “Inventory Count”).

 

2.2.2.2                      C losing Statement .  A statement (the “Closing Statement”) shall be prepared by Purchaser with, if requested by Purchaser, the assistance of Seller, based upon the results of the Inventory Count and the Books and Records of Seller as of the date of this Agreement on a stand-alone basis (i.e., with out giving effect to the consummation of the transactions contemplated by this Agreement).  The Closing Statement shall be prepared in accordance with GAAP, and on a basis consistent with the preparation of the Seller Balance Sheet, including giving effect to reasonable allowances for bad debt, inventory shrinkage and obsolescence, and reasonable reserves for vacation pay, warranty, and customer returns, allowances and rebates.  Purchaser shall deliver to Seller the Closing Statement no later than forty-five (45) days after the date of this Agreement.  Any dispute between Purchaser and Seller with regard to the Closing Statement shall be resolved pursuant to the provisions of Section 2.2.3.  The Closing Statement shall set forth, as of the Closing Date, in reasonable detail, an itemized calculation of the Closing Net Assets of Seller.

 

2.2.2.3                      Purchase Price Adjustment .  When the Closing Net Assets of Seller are finally determined (including pursuant to Section 2.2.3, if applicable), the Purchase Price will be adjusted in the following manner:

 

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(a)                                   If the Closing Net Assets of Seller are greater than the Net Asset Ceiling, the Purchase Price will be increased by an amount equal to such excess and Purchaser shall pay to Seller such excess, if any, in accordance with Section 2.2.4 of this Agreement.

 

(b)                                  If the Closing Net Assets of Seller are less than the Net Asset Floor, the Purchase Price will be decreased by an amount equal to such difference, and Seller shall pay to Purchaser such amount in accordance with Section 2.2.4.

 

2.2.3                      Disputes .  In the event that Seller disputes the Closing Statement in any respect, Seller shall so notify Purchaser within thirty (30) days of its receipt of the Closing Statement (which notice shall specify in reasonable detail the disputed items).  If the parties are unable to resolve such dispute within thirty (30) days thereafter, the items that remain in dispute (the “Disputed Items”) shall be submitted to an independent accounting firm that is mutually acceptable to Purchaser and Seller (the “Independent Accountant”) for determination.  In the event that the parties do not agree upon an Independent Accountant within fifteen (15) days of the date on which an Independent Accountant is initially proposed by one party to the other, the parties shall submit the matter to the American Arbitration Association for a determination of the Independent Accountant.  In connection with its review, the Independent Accountant shall (i) have the right to undertake such procedures as it may deem appropriate and examine all work papers utilized in connection with the preparation of the Closing Statement, and (ii) only make a determination as to the Disputed Items.  The decision of the Independent Accountant as to the Disputed Items shall be final, conclusive and binding upon the parties, without any right of further appeal (absent manifest error).  The parties shall cause the Independent Accountant to deliver a written report of its determination under this Section 2.2.3 contemporaneously to each of the parties.  The expense of (A) the Independent Accountant, and (B) the submission to the American Arbitration Association (as set forth in this paragraph) shall be borne by Purchaser, on the one hand, and Seller, on the other hand, in proportion to the relative differences between (x) the final position of the parties prior to submission of the matter to the Independent Accountant and (y) the determination of the Independent Accountant.

 

2.2.4                      Payment of Purchase Price.  (a) The Purchase Price is being paid to Seller as follows:

 

(i)                                      Four Million Five Hundred Twenty-Eight Thousand Ninety-Eight and Thirty-Six One Hundredths ($4,528,098.36) Dollars (the “Cash Payment”) is being paid by wire transfer to an account designated in writing by Seller contemporaneously with the execution and delivery of this Agreement;

 

(ii)                                   Three Million Nine Hundred Seventy-One Thousand Nine Hundred One and Sixty-Four One Hundredths ($3,971,901.64) Dollars shall be paid by Purchaser’s execution and delivery of a promissory note of Purchaser payable to Seller of even date herewith (the “Seller Note”) contemporaneously with the execution and delivery of this Agreement.

 

(iii)                                the Contingent Consideration shall be paid in accordance with Section 2.2.5; and

 

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(iv)                               an amount equal to the Assumed Payables will be paid by Purchaser’s assumption thereof pursuant to Section 2.3.2 of this Agreement.

 

(b)                                  The amount payable pursuant to Section 2.2.2 (the “Adjustment Amount”) shall be payable following the final determination of the amount thereof as follows:

 

(i)                                      In the event that the Adjustment Amount is payable to Purchaser, then Purchaser, at its option, shall be paid such amount by withholding from, offsetting against and deduction of all or any portion of the Adjustment Amount from any amounts otherwise payable by Purchaser under (A) this Agreement and (B) Additional Transaction Documents; provided, however, that Purchaser shall not have the right to withhold from, offset against or deduct any such amounts from any amounts otherwise payable by Purchaser pursuant to or otherwise in connection with the Visador Consulting Agreement, the Texas Sublease or the AGNL Guaranty; or

 

(ii)                                   In the event that the Adjustment Amount is payable to Seller, then Purchaser shall pay the Adjustment Amount to Seller by check made payable to the order of Seller contemporaneously with any payment due and payable pursuant to Section 2.2.5 of this Agreement.

 

2.2.5                      Contingent Consideration .

 

2.2.5.1                      Three Year Contingent Consideration.

 

(a)                                   Within ninety (90) days following the Three Year Anniversary Date, Purchaser shall deliver to Seller the Three Year Financial Report.  Following Seller’s receipt of the Three Year Financial Report, Seller shall either:

 

(i)                                      deliver to Purchaser the Three Year Acceptance Notice;

 

(ii)                                   deliver to Purchaser the Three Year Rejection Notice; or

 

(iii)                                deliver to Purchaser the Three Year Dispute Notice.

 

(b)                                  In the event that Purchaser receives the Three Year Acceptance Notice on or before the Three Year Option Date, Purchaser shall pay to Seller the Seller Trigger Three Year Contingent Consideration within thirty (30) days following Purchaser’s receipt of the Three Year Acceptance Notice.

 

(c)                                   In the event that Purchaser (i) receives the Three Year Rejection Notice on or before the Three Year Option Date, and (ii) does not receive (x) the Three Year Acceptance Notice or (y) Three Year Dispute Notice on or before the Three Year Option Date, Purchaser shall not pay to Seller the Seller Trigger Three Year Contingent Consideration and Seller’s rights thereto shall be automatically terminated without further action on the part of any Person.

 

(d)                                  In the event that Purchaser receives the Three Year Dispute Notice on or before the Three Year Option Date and (ii) does not receive (x) the Three Year Acceptance Notice, or (y) the Three Year Rejection Notice on or before the Three Year Option Date, Seller

 

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and Purchaser shall, during the thirty (30) day period following Purchaser’s receipt of the Three Year Dispute Notice, cooperate with each other to resolve each disputed item set forth in the Three Year Dispute Notice.  To the extent any matter set forth in the Three Year Dispute Notice remains unresolved following the expiration of such thirty (30) day period, all remaining disagreements with respect to the calculation of such Seller Trigger Three Year Contingent Consideration shall be resolved under the procedures set forth in Section 2.2.3 of this Agreement by substituting “Three Year Financial Report” for “ Closing Statement”.  The Parties shall cause such dispute to be resolved within ninety (90) days following the initial submission of such dispute to the Independent Accountant pursuant to Section 2.2.3 of this Agreement.

 

(e)                                   Within thirty (30) days following receipt of the written determination of the Independent Accountant pursuant to Section 2.2.3 of this Agreement with respect to any dispute submitted pursuant to Section 2.2.5.1(d) of this Agreement, Seller shall:

 

(i)                                      deliver to Purchaser the Three Year Acceptance Notice, whereupon the provisions of Section 2.2.5.1(b) of this Agreement shall apply; or

 

(ii)                                   deliver to Purchaser the Three Year Rejection Notice, whereupon the provisions of Section 2.2.5.1(c) shall apply.

 

(f)                                     Seller shall not deliver to Purchaser more than one notice under Section 2.2.5.1(a) or 2.2.5.1(e) of this Agreement.  In the event Purchaser receives on or before the Three Year Option Date more than one notice under Section 2.2.5.1 (a), or no such notice, Seller is hereby deemed to have delivered only a Three Year Rejection Notice (on or before the Three Year Option Date) pursuant to Section 2.2.5.1(c) of this Agreement.  Except to the extent permitted by Section 2.2.5.1 (e) (and assuming only a Three Year Dispute Notice (and no Three Year Acceptance Notice or Three Year Rejection Notice) was received by Purchaser as contemplated by Section 2.2.5.1 (a) prior to the Three Year Option Date), any notice under this Section 2.2.5.1 received by Purchaser following the Three Year Option Date shall be of no effect.

 

(g)                                  Notwithstanding anything else contained in this Agreement, in the event that Purchaser (i) receives the Three Year Rejection Notice on or before the Three Year Option Date (or Seller is deemed to have delivered the Three Year Rejection Notice on or before the Three Year Option Date pursuant to Section 2.2.5.1(f) of this Agreement), or (ii) does not receive (x) the Three Year Acceptance Notice or (y) Three Year Dispute Notice, in each case on or before the Three Year Option Date, then, (A) if Adjusted EBITDA for the First Earn Out Period is equal to or greater than Three Million Fifty-Eight Thousand ($3,058,000) Dollars (as shown on the Three Year Contingent Consideration Report or as otherwise determined pursuant to Section 2.2.5.1(d) of this Agreement), Purchaser may, in its sole and absolute discretion, which shall be final, conclusive and binding, pay to Seller the Purchaser Trigger Three Year Contingent Consideration and (B) if Adjusted EBITDA for the First Earn Out Period is less than Three Million Fifty-Eight Thousand ($3,058,000) Dollars (as shown on the Three Year Contingent Consideration Report or as otherwise determined pursuant to Section 2.2.5.1(d) of this Agreement), Purchaser may, in its sole and absolute discretion, which shall be final, conclusive and binding, pay to Seller the Purchaser Trigger Three Year Contingent

 

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Consideration as if the Adjusted EBITDA was exactly Three Million Fifty-Eight Thousand ($3,058,000) Dollars.

 

2.2.5.2                      F our Year Contingent Consideration .

 

(a)                                   Provided no Seller Trigger Three Year Contingent Consideration has been paid or is due and payable to Seller and Purchaser has not paid to Seller any Purchaser Trigger Three Year Contingent Consideration, in each case pursuant to Section 2.2.5.1 of this Agreement, within ninety (90) days following the Four Year Anniversary Date (the last day of such ninety (90) day period being referred to as the “Four Year Trigger Date”), Purchaser shall deliver to Seller the Four Year Financial Report, and Purchaser may, in its sole and absolute discretion, which shall be final, conclusive and binding, elect to pay to Seller the Four Year Contingent Consideration (such election to be evidenced by Purchaser’s written notice to Seller which shall accompany the Four Year Financial Report); provided, however, that such election shall not be binding upon Purchaser if Seller elects to, or is deemed to have, delivered the Four Year Dispute Notice to Purchaser.  Following Seller’s receipt of the Four Year Financial Report, if Purchaser has elected to pay the Four Year Contingent Consideration, Seller shall either:

 

(i)                                      deliver to Purchaser the Four Year Acceptance Notice;

 

(ii)                                   deliver to Purchaser the Four Year Dispute Notice.

 

(b)                                  Notwithstanding anything else contained in this Agreement, if following the resolution of any dispute pursuant to Section 2.2.5.2(d), or if there is no such dispute, the Four Year Financial Report reflects that the Four Year Contingent Consideration is $0 or a negative number, Seller shall not be entitled to any Four Year Contingent Consideration, Termination Proceeds or Deferred Proceeds or other payments under Section 2.2.5 and Purchaser shall have no further obligations under such section.

 

(c)                                   In the event that Purchaser receives the Four Year Acceptance Notice on or before the Four Year Option Date, Purchaser shall pay to Seller the Four Year Contingent Consideration within thirty (30) days following Purchaser’s receipt of the Four Year Acceptance Notice.

 

(d)                                  In the event that Purchaser (i) receives the Four Year Dispute Notice on or before the Four Year Option Date and does not receive the Four Year Acceptance Notice on or before the Four Year Option Date, Seller and Purchaser shall during the thirty (30) day period following Purchaser’s receipt of the Four Year Dispute Notice cooperate with each other to resolve each disputed item set forth in the Four Year Dispute Notice.  To the extent any matter set forth in the Four Year Dispute Notice remains unresolved following the expiration of such thirty (30) day period, all remaining disagreements with respect to the calculation of such Four Year Contingent Consideration shall be resolved under the procedures set forth in Section 2.2.3 of this Agreement by substituting “Four Year Contingent Consideration Report” for “Closing Statement”.  The Parties shall cause such dispute to be resolved within ninety (90) days following the initial submission of such dispute to the Independent Accountant pursuant to Section 2.2.3 of this Agreement.

 

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(e)                                   Within thirty (30) days following receipt of the written determination of the Independent Accountant pursuant to Section 2.2.3 of this Agreement with respect to any dispute submitted pursuant to Section 2.2.5.2(d) of this Agreement, Purchaser may in its sole and absolute discretion, which shall be final, conclusive and binding:

 

(i)                                      deliver to Seller the Four Year Mandatory Acceptance Notice, together with payment to Seller of the Four Year Contingent Consideration (calculated using the amount finally determined by the Independent Account pursuant to Section 2.3 of this Agreement with respect to the matters submitted pursuant to Section 2.2.5.2 (d) of this Agreement); or

 

(ii)                                   deliver to Seller the Four Year Mandatory Rejection Notice and Purchaser shall not pay to Seller the Four Year Contingent Consideration and Seller’s rights thereto shall be automatically terminated without further action on the part of any Person.

 

(f)                                     Seller shall not deliver to Purchaser more than one notice under Section 2.2.5.2(a) of this Agreement.  In the event Purchaser receives prior to the Four Year Option Date more than one such notice or no such notice, Seller is hereby deemed to have delivered only a Four Year Acceptance Notice pursuant to Section 2.2.5.2(a)(i) of this Agreement.  Any notice under this Section 2.2.5.2 received by Purchaser following the Four Year Option Date shall be of no effect.

 

2.2.5.3                      Termination Transaction .

 

(a)                                   In the event that (i) Purchaser has not received the Three Year Acceptance Notice on or before the Three Year Option Date, (ii) Purchaser is not obligated to pay the Purchaser Trigger Contingent Consideration pursuant to Section 2.2.5.1 of this Agreement, (iii) Purchaser is not obligated to pay the Four Year Contingent Consideration pursuant to 2.2.5.2 of this Agreement, and (iv) a Change of Control Transaction has not been consummated, Purchaser shall (during the one (1) year period commencing on the day immediately following the Four Year Trigger Date (the “Sale Period”)) use its commercially reasonable efforts to consummate a Termination Transaction, or cause a Termination Transaction to be consummated, as soon as reasonably practicable, following the Four Year Option Date.  The parties hereby agree that (A) as soon as reasonably practicable following the Four Year Option Date, Purchaser shall notify Seller of the proposed investment bank (the “Investment Bank”) selected by Purchaser to conduct the sale process (which Investment Bank shall be reasonably acceptable to Seller (it being understood and agreed by Seller that Purchaser need not select an Investment Bank unless and until Purchaser has received from Seller Seller’s written notice indicating such Investment Bank is acceptable to Seller, which notice of acceptance shall not be unreasonably withheld or delayed following Purchaser’s request therefor)); (B) Seller shall have access to, and shall have the ability to ask questions about the sale process of, Purchaser and, if applicable, the Investment Bank, provided that an officer of Purchaser, designated by the Board of Directors of P&F is present during each such opportunity; (C) Purchaser shall provide Seller with copies of all marketing materials created by Purchaser or the Investment Bank and used in the sale process and information on the terms and conditions of all bids submitted for Purchaser; and (D) Seller shall, upon its request, be kept advised by Purchaser regarding the timing, structure, pricing, contingencies and other material terms and conditions of the Termination Transaction; provided,

 

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however, that the timing, structure, pricing, contingencies and all other terms and conditions of the (and whether or not to consummate any) Termination Transaction shall be determined by Purchaser, in its sole and absolute discretion, which shall be final, conclusive and binding.

 

(b)                                  Contemporaneously with the consummation of a Termination Transaction, if any, Purchaser shall pay to Seller Seller’s Portion of any Termination Proceeds.

 

(c)                                   Following the consummation of a Termination Transaction, Purchaser shall pay to Seller Seller’s Portion of any Deferred Proceeds within ten (10) days following Purchaser’s receipt thereof.

 

(d)                                  Without limiting the generality of anything contained in this Agreement, nothing in this Agreement shall require Purchaser to consummate a Termination Transaction, or cause a Termination Transaction to be consummated (and, accordingly, Purchaser shall have no obligations under any of the provisions of this Section 2.2.5.3(a) through (e), inclusive), in the event such Termination Transaction, in Purchaser’s sole and absolute discretion, which shall be final, conclusive and binding, would result in the aggregate of Termination Proceeds and Deferred Proceeds constituting a negative amount.

 

(e)                                   If no Termination Transaction has been consummated prior to the end of the Sale Period, Purchaser shall, as soon as practicable and in accordance with law and Purchaser’s Operating Agreement, commence the dissolution and winding up of Purchaser’s business (including distributions to, or making reasonable provision for distributions to, all creditors of Purchaser) (a “Liquidation”).  In such event, upon consummation of any such Termination Transaction, Purchaser shall pay to Seller Seller’s Portion of any Termination Proceeds and within ten (10) days following receipt of any Deferred Proceeds, Purchaser shall pay Seller Seller’s Portion of any Deferred Proceeds.

 

2.2.5.4                      Conduct of Business During Contingency Period .

 

During the Contingency Period, Purchaser shall not, without the prior written consent of Seller, which consent shall not be unreasonably withheld or delayed:

 

(a)                                   Engage in any business other than the Business and the Purchaser Business, and any business ancillary or related, or necessary or advisable with respect, thereto;

 

(b)                                  Except in connection with a Change in Control Transaction, a Non-Qualifying Transaction in which Purchaser is not a direct party, a Termination Transaction, a Liquidation or a Liquidation Event:  (i) sell, lease, transfer or otherwise dispose of any of Purchaser’s properties or assets, other than (A) sales or dispositions of inventory in the ordinary course of business and (B) sales or dispositions of non-inventory assets not to exceed $100,000 in any one sale or disposition (or series of related sales or dispositions) or $150,000 in the aggregate for any calendar year; or, (ii) except (A) to the extent of a Non-Qualifying Transaction or (B) for short-term deposit accounts maintained in the ordinary course of business, direct obligations of the United States or any agency thereof, certificates of time deposits in commercial banks of recognized standing, commercial paper issued by a domestic corporation with a rating by Moody’s Investor Service, Inc.  of at least “P-1” or by Standard & Poor’s Corporation of at least “A-1”, purchase or acquire obligations or equity interests of, or any other

 

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interest in, any Person, or make other any investments (including investments in Xiamen Wei Yu Wood Products Co., Ltd or Quanzhou Yoddex Building Material Co., other than ordinary course transactions with such entities);

 

(c)                                   Create, incur or assume any Indebtedness to the extent that the principal amount thereof outstanding on any date is in excess of One Hundred Thousand ($100,000) Dollars (other than (i) Indebtedness pursuant to the PNC Credit Agreement or (ii) current trade liabilities incurred in the ordinary course of business and payable in accordance with customary practices of Purchaser (collectively “Permitted Indebtedness)); materially modify the terms of any existing Indebtedness of Purchaser (it being acknowledged and agreed that no such modification shall be deemed material to the extent that the principal amount of Indebtedness outstanding on any date other than Permitted Indebtedness is One Hundred Thousand ($100,000) Dollars or less); or take any actions or permit Purchaser to omit to take any actions with respect to any of Purchaser’s Indebtedness (other than Permitted Indebtedness) if such action (or failure to act) would result in a default by Purchaser under the terms of such Indebtedness, except to the extent such Indebtedness is being contested in good faith or valid Purchaser has valid claims against the Person to whom such Indebtedness is owed, or where such payment is prohibited or restricted by law;

 

(d)                                  Enter into any one or more Financing Leases in any calendar year in an aggregate amount in excess of One Hundred Thousand ($100,000) Dollars;

 

(e)                                   Contract for, purchase, or make any expenditure or commitments for, Capital Expenditures in any calendar year in an aggregate amount in excess of Five Hundred Thousand ($500,000) Dollars;

 

(f)                                     Pay or make any Cash Dividend on any membership interest of Purchaser or apply any of its funds, property or assets to the purchase, redemption or other retirement of any membership interest of Purchaser, or of any options to purchase or acquire any such membership interest of Purchaser;

 

(g)                                  Enter into any transaction with any Affiliate of Purchaser, except transactions described on Schedule 2.2.5.4 or any transaction disclosed to Seller that is entered into in the ordinary course of business, on an arm’s length basis on terms and conditions no less favorable than terms and conditions which would have been obtainable from a Person other than an Affiliate of Purchaser; or

 

(h)                                  Change Purchaser’s fiscal year or make any material change (i) in accounting treatment and reporting practices except as required or permitted by GAAP or (ii) tax reporting treatment except as required or permitted by law.

 

2.2.5.5                      Information as to Purchaser

 

During the Contingency Period, Purchaser shall

 

(a)                                   Furnish Seller with a copy of any financial information (including any accompanying management discussion and analysis required to be delivered to PNC) furnished by Purchaser to PNC under Sections 9.7, 9.8, 9.9 and 9.10 of the PNC Credit Agreement,

 

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