ASSET PURCHASE
AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the
“Agreement”) is made as of this 11th of October, 2005
by and among Embassy Industries, Inc., a New York corporation with
principal offices at 300 Smith Street, Farmingdale, New York 11735
(the “Seller” or “Embassy”), P&F
Industries, Inc., a Delaware corporation with principal offices at
300 Smith Street, Farmingdale, New York 11735 (the
“Parent”), Embassy Manufacturing, Inc., a Delaware
corporation with principal offices at 260 North Elm Street,
Westfield, MA 01085 (the “Purchaser”), and Mestek,
Inc., a Pennsylvania corporation, with principal offices at 260
North Elm Street, Westfield, MA 01085 (the “Purchaser
Parent”).
RECITALS
A.
Seller is the owner of certain
assets including machinery, equipment, and other tangible personal
property, inventory, accounts or notes receivable, intellectual
property, rights under agreements, permits, goodwill and books,
records, information and materials required or appropriate for the
continued operation of that certain business as conducted by Seller
as of and for the twenty-four (24) months prior to the Closing Date
(as hereinafter defined) that designs, develops, engineers,
manufactures, markets and sells hydronic baseboard radiation,
commercial finned tube radiation, kick space hydronic heaters,
in-floor radiant heating systems, ceiling radiant panels, unit
heaters, fan coil units, convectors, cabinet unit heaters,
gas-fired hot water and combination heaters and boilers, and
related software, under the tradename “Embassy” and any
and all other Embassy products (collectively, the
“Products”) and the repair and service parts related
thereto (the “Embassy Business”).
B.
Seller desires and intends to sell
and transfer substantially all of the operating assets and certain
liabilities of Seller associated with the Embassy Business to
Purchaser at the price and on the terms and conditions hereinafter
set forth and, pursuant to that certain Lease of even date among
the Seller, the Purchaser (the “Lease”), Seller is
contemporaneously herewith agreeing to lease to Purchaser the
premises currently occupied by Seller (the
“Premises”).
C.
The Purchaser Parent, who is the
sole stockholder of the Purchaser, is executing and delivering this
Agreement in order to induce (i) Seller to sell substantially
all of the Seller’s assets associated with the Embassy
Business pursuant to this Agreement, (ii) Seller and Parent to
agree not to compete with the Purchaser as it operates the Embassy
Business following the closing, as provided herein and
(iii) Seller and Parent to execute and deliver this
Agreement.
D.
The Parent, who is the sole
stockholder of the Seller, is executing and delivering this
Agreement in order to (i) induce Purchaser to purchase
substantially all of the Seller’s operating assets associated
with the Embassy Business pursuant to this Agreement and (ii)
induce Purchaser and Purchaser Parent to execute and deliver
this Agreement.
E.
Purchaser is hereby purchasing the
above-mentioned assets and assuming certain liabilities, as
specified herein, of Seller associated with the Embassy Business at
the price and on the terms and conditions hereinafter set
forth.
AGREEMENTS
NOW, THEREFORE,
in consideration of the terms hereof, the parties hereto, intending
to be legally bound hereby, agree as follows:
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1.
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Purchase and
Sale of Assets .
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1.1 The Assets . Effective as of the Closing
Date (as hereinafter defined) and subject to the terms and
provisions contained in this Agreement, Seller hereby sells,
transfers, conveys, assigns and delivers the Assets (as hereinafter
defined) at the Premises or such other location where any Asset
exists as of the Closing Date to Purchaser, and Purchaser hereby
purchases, acquires and accepts the Assets from Seller, free and
clear of all Liens (as hereinafter defined), other than Permitted
Liens (as hereinafter defined), except for the Excluded Assets (as
hereinafter defined), Except for the Excluded Assets, the assets,
rights, interests, properties and goodwill sold, transferred,
conveyed, assigned and delivered by Seller to Purchaser hereunder
(collectively, the “Assets”) consists of the
Seller’s right, title and interest in and to the
following:
1.1.1
Machinery &
Equipment . All of the
machinery, equipment, office and computer equipment, furniture,
furnishings, fixtures, jigs, dies, tooling, patterns, tooling
fixtures, trucks, motor vehicles and all other fixed tangible
assets owned by Seller and used by Seller in the Embassy Business,
including those identified in Schedule 1.1.1 attached hereto
(the “Machinery & Equipment”), together with any
rights of Seller to all warranties, and guaranties by, and
rights, choses in action, and claims, known or unknown, matured or
unmatured, accrued or contingent against third parties relating to
any other Assets, including rights in and to insurance and
indemnity claims of the Seller relating to any such other Assets,
if any, and to the extent assignable, received from the
manufacturers and sellers of such items;
1.1.2
Inventory . All inventory owned by Seller relating to the
Embassy Business including raw materials, work-in-process, and
finished goods (the “Inventory”);
1.1.3
Material Agreements
. Subject to required consents by
third parties, all right, title and interest of Seller in, to and
under those certain executory contracts (including the right to the
return of any and all deposits which Seller delivered to vendors),
contract rights and agreements (including open purchase orders
issued by Seller to vendors in the ordinary course of business as
well as open purchase orders issued to Seller from customers) to
provide equipment, repair parts and services to the customers of
Seller, sales representative agreements, leases of real or personal
property, licenses, service and maintenance agreements, and other
agreements related to the ownership or operation of the Embassy
Business, copies of which agreements have been made available to
Purchaser, including, but not limited to, the agreements described
on Schedule 1.1.3 attached hereto all of which shall be,
except as otherwise disclosed on Schedule 1.1.3 and or
Schedule 7.3 , as of the Closing Date in full force and
effect without any existing defaults (or events or conditions
which, with notice or lapse of time or both, would constitute a
default) thereunder (the “Material Agreements”),
provided however , it is acknowledged and agreed among the
parties hereto that, Schedule 1.1.3 shall not be required to
include any agreements requiring payments of $25,000 or less to or
from Seller (though such agreements are being assigned hereby, to
the extent assignable);
1.1.4
Intellectual Property
. All patents, patent applications,
trademarks, trademark applications, service marks, tradenames,
including the registered tradenames “Embassy”,
“System 6”, “Panel Track”,
“Hide-A-Vector”, “Embassy Systems”,
“Red-E-Pak Baseboard”, “Liquipex” and
“Hydropex” as identified in Schedule 1.1.4(a) as
“Registered Intellectual Property” and
“Falcon”, “Paladin”, “Curvant”,
“Ambassador”, “Axia”, and
“Platinum” as identified in Schedule 1.1.4(b) as
“Unregistered Tradenames”, copyrights and copyright
applications, and licenses with respect to any of the foregoing,
and all inventions, inventor’s notes, discoveries, trade
secrets, ideas, product designs, proprietary processes and
formulae, improvements, engineering drawings, computer-assisted
design and manufacturing data, bills of material, designs and
specifications (including design choices), computer software and
laboratory certifications, proprietary and trade rights and data,
ideas and know-how, whether patentable or not, and all shop rights,
manufacturing data, licenses, and other intellectual property of
Seller, and all correspondence related thereto, that are used in
connection with the Embassy Business, whether in written, graphic,
or electromagnetic format along with all income, royalties, damages
and payments for past, present or future infringement or
misappropriation and the right to sue and recover for past
infringement or misappropriation), and any and all corresponding
rights (including applications for and licenses concerning any of
the foregoing) (all of which are hereinafter collectively referred
to as the “Intellectual Property”);
1.1.5
Receivables
. All accounts or notes receivable
(if any) of Seller as of the Closing Date (the
“Receivables”);
1.1.6 [INTENTIONALLY OMITTED]
1.1.7
Permits . All of Seller’s right, title and
interest in and to any and all permits, licenses, authorizations,
certifications, consents, orders, registrations and approvals of
any federal, state or local governmental entity or certifying or
regulatory agency or authority required of Seller or otherwise
necessary or advisable for the operation of the Embassy Business as
set forth on Schedule 1.1.7 attached hereto (the
“Permits”), to the extent the same are transferable or
assignable to Purchaser;
1.1.8
Files and Records
. All of Seller’s right,
title and interest in or to the Files and Records (as hereinafter
defined) as further provided herein.
1.1.9
Goodwill . The goodwill associated with the Embassy
Business, including the telephone number 631-694-1800.
1.2 [INTENTIONALLY OMITTED]
1.3
Off-Site Assets
. All tangible Assets held at any
location other than the Premises at the Closing Date are described
in Schedule 1.3 attached to this Agreement, which schedule
includes a description of each of such assets, its type, the name
and address of the vendor or customer holding such assets and, if
such asset is held pursuant to an agreement, a copy or description
of such agreement is attached as an exhibit to, or described on,
such schedule.
2.
Excluded Assets
. The assets excluded from this
Agreement (the “Excluded Assets”) are set forth in
Schedule 2.0 attached hereto. To the extent not excluded by
being listed on Schedule 2.0
attached
hereto, Seller’s right, title and interest in any asset owned
by Seller and used in the operation of the Embassy Business shall
be considered an Asset being conveyed to Purchaser by
Seller.
3.1
Purchase Price;
Adjustment . The purchase
price being paid simultaneously herewith by Purchaser to Seller
under this Agreement for the Assets is Eight Million and 00/100
Dollars ($8,000,000.00), plus the Assumed Obligations, as
hereinafter defined, which are being expressly assumed under
section 5 of this Agreement (the “Purchase Price”),
subject to the adjustment as set forth below.
3.2 [INTENTIONALLY OMITTED]
3.3
Reference Statement, Closing
Statement; Inventory; Purchase Price Adjustment
.
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3.3.1
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Reference
Statement. Attached
hereto as Exhibit 3.3.1 is a Reference Statement (the
“Reference Statement”) consisting of certain itemized
current assets and current liabilities as of March 31, 2005 which
result in a net working capital amount of $3,144,002.82(the
“Reference Net Working Capital Amount”), established
for purposes of the Purchase Price Adjustment described in Section
3.3.4 below. Such items as are set forth in the Reference Statement
have been determined in accordance with United States Generally
Accepted Accounting Principles (“GAAP”) and the past
practices of the Seller except as agreed upon by the Seller and the
Purchaser as set forth on the Reference Statement.
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3.3.2
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Closing
Statement . A statement
(the “Closing Statement”) shall be prepared by
Purchaser, consisting of the same item categories as are set forth
in the Reference Statement, and reflecting all current assets of
the Seller being transferred and of benefit to the Purchaser, and
all current liabilities specifically being assumed by Purchaser
(including those referenced in Section 10.5.4(a) below) or which
are imposed upon the Purchaser, and based upon the results of the
Inventory Count described in Section 3.3.3 below and the Files and
Records of Seller as of the Closing Date. The Closing Statement
will result in a net working capital amount (the “Closing Net
Working Capital Amount”), established for purposes of the
Purchase Price Adjustment described in Section 3.3.4 below. The
items set forth in the Closing Statement shall be determined in
accordance with GAAP and the past practices of the Seller.
Purchaser shall deliver to Seller the Closing Statement not later
than sixty (60) days after the date hereof. Any dispute between
Purchaser and Seller with regard to the Closing Statement shall be
resolved pursuant to the provisions of Section 3.4
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3.3.3
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Inventory . As of the Closing Date, a physical count of
the Inventory (the “Inventory Count”) was conducted by
the employees of Seller in accordance
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with
past practices of the Seller and mutually agreed upon procedures,
subject to the supervision of Purchaser and its accountants. The
Inventory as counted at the Closing Date shall be valued as soon as
reasonably possible following the Closing Date as follows: raw
materials and purchased components shall be valued individually at
the lower of acquisition costs or market value in accordance with
GAAP consistently applied. Acquisition costs shall be determined on
an item-by-item basis by reference to the price most recently paid
by Seller (i.e., first-in, first-out basis). Work-in-process,
consisting of manufactured parts, sub-assemblies and equipment in
the process of being assembled, and finished goods shall be valued
at the sum of the value of the raw material and purchased
components, the direct labor and the factory burden applicable to
said items as further set forth herein: (i) raw materials and
purchased components shall be valued at the lower of acquisition
costs or market value in accordance with GAAP consistently applied,
(ii) direct labor shall be valued at the year-to-date average
actual rate per hour for direct labor employed by Seller,
multiplied by verifiable time standards and (iii) burden shall
determined by reference to a rate per hour of direct labor,
reflecting actual expenses (both fixed and variable) of
manufacturing overhead, excluding costs generally associated with
engineering, sales, marketing, general and administrative expense
and the like. The above inventory processes shall be conducted in
accordance with Seller’s past practice so long as not
inconsistent with GAAP and with appropriate reduction for all
non-saleable, unusable, damaged, obsolete and slow-moving inventory
items (i.e., inventory reserves). Notwithstanding the foregoing,
and solely for the purposes of calculating the Inventory Valuation
Reduction (defined below), all products in work-in-process will be
increased by amounts required to deem them equivalent to their
respective finished goods values, consistent with above, and to the
extent that the gross value of finished goods and pro-forma work in
process inventories, as of the Closing Date, are determined to have
been, in the aggregate, of a value in excess of 75% of the average
demonstrable recent selling prices actually invoiced by Seller to
its customers within sixty (60) days prior to the Closing Date (or,
if not available within such time frame, the last selling price
actually invoiced by Seller to its customer), extended to reflect
the number of items of Inventory being valued, such excess, further
reduced by the amount of the Inventory “general”
reserve recorded on the books up to a maximum of $35,000, shall
constitute an “Inventory Valuation Reduction”. The
amount of any such work in process or finished goods Inventory
Valuation Reduction, however, shall not exceed $250,000 in the
aggregate.
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3.3.4
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Purchase
Price Adjustment . When
the Closing Net Working Capital Amount is finally determined
(including pursuant to Section 3.4 , if applicable), the
Purchase Price will be adjusted in the following manner:
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(a)
If
the Closing Net Working Capital Amount is greater than the
Reference Net Working Capital Amount, the Purchase Price will be
increased, dollar for dollar, by an amount equal to such excess,
and Purchaser shall, and Purchaser Parent shall cause Purchaser to,
pay to Seller such excess amount in accordance with Section
3.5.
(b)
If
the Closing Net Working Capital Amount is less than the Reference
Net Working Capital Amount, the Purchase Price will be decreased,
dollar for dollar, by an amount equal to such difference, and
Seller shall, and Parent shall cause Seller to, pay to Purchaser
such amount in accordance with Section 3.5 .
3.4
Disputes . (a) In the event that Seller disputes the
Closing Statement in any respect, Seller shall so notify Purchaser
within fifteen (15) 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
fifteen (15) 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 expense of (A) the Independent Accountant, and (B) the
submission to the American Arbitration Association (as set forth in
this paragraph) shall be (i) borne by Purchaser and Purchaser
Parent, jointly and severally, 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.
(b) Promptly following the delivery of the Closing
Statement, each of Seller, the Purchaser, and Purchaser Parent
shall make the Files and Records of the Embassy Business within
their respective possession available to each other on reasonable
notice during normal business hours in order for the parties to
verify the calculations of the amounts set forth in the Closing
Statement.
3.5
Payment of Purchase Price;
Payment of Escrow Amounts. (a) The Purchase Price is being paid to Seller
contemporaneously with the execution of delivery of this Agreement
as follows:
(i) Seven Million Two Hundred Thousand
($7,200,000.00) Dollars (the “Closing Payment”) is
being paid by wire transfer to an account of Seller designated in
writing by Seller;
(ii) Eight Hundred Thousand ($800,000.00) Dollars
(the “Escrow Payment”) is being paid by Purchaser to
Greenberg, Traurig LLP (the “Escrow Agent”), to be
held
and disbursed
pursuant to the terms of that certain escrow agreement of even date
among Purchaser, Seller and the Escrow Agent (the “Escrow
Agreement”); and
(iii) an amount equal to the Assumed Obligations will
be paid by Purchaser’s assumption thereof; and
(b) The amount payable pursuant to Section
3.3.4 (the “Adjustment Amount”) shall be payable
within ten (10) days following the final determination of the
amount thereof.
(c) (i) In accordance with the provisions of
Section 3.5 (b) of this Agreement, in the event that the Adjustment
Amount is payable to Purchaser, then:
(A) if such amount is equal to or less than the
Adjustment Escrow (as hereinafter defined), the Adjustment Amount
shall be paid by the Escrow Agent to Purchaser and the balance, if
any, of the Adjustment Escrow shall be paid by the Escrow Agent to
Seller simultaneously therewith; and
(B) if such amount is greater than the Adjustment
Escrow, the Adjustment Escrow shall be paid by the Escrow Agent to
Purchaser and the difference between the Adjustment Amount and the
Adjustment Escrow shall be paid by Seller to Purchaser.
(ii) In accordance with the provisions of Section
3.5 (b) of this Agreement, in the event that the Adjustment Amount
is payable to Seller, then the Adjustment Escrow shall be paid by
the Escrow Agent to Seller and the Adjustment Amount shall be paid
by Purchaser to Seller. For purposes of this Agreement, the term
“Adjustment Escrow” shall mean a portion of the Escrow
Fund, as such term is defined in the Escrow Agreement, in the
amount of Four Hundred Thousand Dollars ($400,000).
(d) (i) In the event that one or more Claims (as
hereinafter defined) is made by Purchaser pursuant to Section 16 of
this Agreement and notice of such Claim is received by Seller prior
to the expiration of the period ending on the twenty (20) month
anniversary of the Closing Date (the “Survival Period”)
(an “Allowed Claim”):
(ii) To the extent that the aggregate amount of all
such Allowed Claims (the “Aggregate Claim Amount”) is
less than the amount of the Indemnification Escrow (as hereinafter
defined), the Seller shall be entitled to receive from the Escrow
Agent the difference between the Indemnification Escrow and the
Aggregate Claim Amount upon the expiration of the Survival
Period.
(iii) In the event that the amount of any Allowed
Claim (a “Claim Amount”) is determined by the final,
binding, non-appealable order of a court of competent jurisdiction
(determined in accordance with the provisions of this Agreement)
(an “Order”) to be due Purchaser, Purchaser shall be
entitled to receive from the Escrow Agent such Claim Amount up to
the amount of the Indemnification Escrow or the remaining balance
thereof, if less. The balance, if any, of the Indemnification
Escrow after the payment of amounts due Purchaser as contemplated
by the immediately preceding sentence shall be payable by the
Escrow Agent to Seller on the later of the
expiration of
the Survival Period or the day the last such payment is made to
Purchaser.
(iv) If no Allowed Claim is made, the
Indemnification Escrow shall be paid by the Escrow Agent to the
Seller upon the expiration of the Survival Period. For
purposes of this Agreement, the term “Indemnification
Escrow” shall mean a portion of the Escrow Fund, as such term
is defined in the Escrow Agreement, in the amount of Four Hundred
Thousand Dollars ($400,000).
(e) Notwithstanding the foregoing, if, at the time
the Escrow Agent is required to pay any amount to Seller pursuant
to Section 3.5 (c) or 3.5 (d) hereof, there is a dispute with
regard to the payment of the Adjustment Amount and/or any amount
under Section 3.5 (d), no amounts shall be paid by the Escrow Agent
to Seller or Purchaser, as the case may be, until there has been a
resolution of the dispute and then only in a manner consistent with
the resolution of the dispute. In such event, the Seller and
Purchaser shall, and Purchaser Parent shall cause Purchaser to,
deliver written instructions to the Escrow Agent authorizing the
Escrow Agent to disburse the Escrow Fund or such portion thereof
consistent with the resolution of such dispute.
(f) Each payment made pursuant to Section 3.5 (c)
or 3.5 (d) shall include interest thereon as contemplated by the
Escrow Agreement
4.
Allocation of Purchase
Price . The Purchase
Price shall be allocated among the Assets acquired hereunder in
accordance with the Memorandum of Allocation executed and delivered
by the Purchaser and the Seller contemporaneously with the
execution and delivery of this Agreement (the “Memorandum of
Allocation”) (and in a manner that is consistent with Section
1060 of the Internal Revenue Code of 1986, as amended) and shall be
adjusted as required by the Purchase Price adjustment set forth in
Section 3.3 hereof. It is agreed that the apportionments set
forth in the Memorandum of Allocation have been arrived at by
arm’s length negotiation and properly reflect the respective
fair market values of the Assets. Seller and Purchaser each hereby
covenants and agrees that it will not take a position on any tax
return, before any governmental agency charged with the collection
of any tax, or in any judicial proceeding that is in any way
inconsistent with the terms of the Memorandum of Allocation. If any
party receives notice that a taxing authority is challenging such
allocation, the party receiving such notice shall promptly notify
the other party, and the parties shall cooperate in good faith in
responding to such challenge in order to preserve the effectiveness
of such allocation. Notwithstanding any allocation by the parties,
Purchaser has agreed to purchase and Seller has agreed to sell all
of the Assets, and the allocation is not intended and shall not be
deemed to constitute an agreement between the parties to transfer
less than all of the Assets. Furthermore, such allocation has been
made solely to ascribe fair value to the Assets and any benefits
deriving therefrom shall not inure to any other third
party.
5.
Assumption of
Liabilities .
On and after the Closing Date, the Purchaser
hereby assumes and agrees to (and the Purchaser Parent shall cause
Purchaser to) pay, perform, satisfy and discharge, as and when due,
the following liabilities and obligations of Seller (collectively,
the “Assumed Obligations”):
5.1
Assumed Liabilities
. (a) Those accounts payable,
customer deposits, open customer and vendor purchase orders, other
contractual liabilities and obligations together with commissions
payable, all incurred by Seller in the ordinary course of the
conduct of the Embassy Business, and (b) any and/or all other
liabilities and obligations of Seller as specifically set forth in
Schedule 5.1(b) attached hereto.
5.2
Assumption of Material
Agreements . The
liabilities and obligations of the Seller with respect to and
arising under the Material Agreements.
5.3
Employee Obligations
. The Employee Obligations, as such
term is hereinafter defined.
5.4
Liabilities After
Closing . All liabilities
and obligations arising in connection with the Embassy Business
and/or the Assets on or after the Closing Date as a result of the
operation of the Embassy Business or use or ownership of the Assets
on and/or after such date.
5.5
Warranty . All warranty obligations with respect to
products (including Products) manufactured by or on behalf of
Purchaser and/or on account of the Embassy Business on and after
the Closing Date and/or related to any Products regardless of when
manufactured if and to the extent such warranty obligations arise
due to the negligence and/or willful misconduct of
Purchaser.
5.6
Limits on Assumption
. Except for the Assumed
Obligations (including as set forth in Sections 5.1, 5.2, 5.3,
5.4, and 5.5) , Purchaser shall not assume, and Seller shall
retain and be responsible for, (a) any other liabilities,
obligations and commitments of Seller, whether fixed or contingent,
legal or equitable, mature or inchoate, written or oral, express or
implied, known or unknown, including those for taxes, employment
practices, employee benefits and pensions, collective bargaining
matters, product warranties (whether express or implied) (subject
to the Purchaser’s and Purchaser Parent’s obligations
set forth in Section 10.5 hereof), products or
professional liability, and, except as provided in the Lease,
environmental, health and safety practices, all as related to,
arising from or in connection with the Embassy Business arising
from or relating to the Embassy Business prior to the Closing Date,
(b) any liability related in whole or in part to the businesses of
Seller or Parent other than the Embassy Business, (c) any liability
arising from any default, breach, nonperformance, misfeasance,
malfeasance, violation of Law, or nonfeasance by or on behalf of
Seller or Parent, including any warranty claims or claims of breach
or default under any assigned contract, (d) any liability for
accounts or notes payable of the Embassy Business other than the
Assumed Obligations, (e) any litigation in process or pending as of
the Closing Date, or otherwise arising from or relating to
activities of the Seller or Parent relating to the Embassy Business
prior to the Closing Date, including litigation identified on
Schedule 7.10, (f) any indebtedness, obligations, duties or other
liabilities related to or arising in connection with the Excluded
Assets, including all executory obligations under contracts
included in the Excluded Assets, (g) any liability arising out of
the actual or alleged tortious conduct of the Seller or Parent or
any of their respective representatives, whether related to the
Embassy Business or otherwise, (h) any and
all liabilities, obligations or claims arising from or relating to
Products manufactured and services performed prior to the Closing
Date, and (i) those liabilities, obligations and commitments of
Seller that arise after the Closing Date.
5.7
Assignment of Contracts and
Rights . Notwithstanding
anything in this Agreement, this Agreement shall not constitute an
agreement to assign, an attempt to assign or, an assignment of, any
particular Asset, including any claim, contract, license,
lease, commitment, sales order, purchase order or any claim or
right or any benefit arising thereunder or resulting therefrom if
the assignment, attempt to assign or agreement to assign, would
constitute a breach thereof or be unlawful or in any way adversely
affect the rights of Purchaser or Seller thereunder. Until such
consent is obtained, or if an assignment, attempt to assign or
agreement to assign, would be ineffective or would affect the
rights of Seller thereunder so that the Purchaser would not in fact
receive all such rights, Purchaser and Seller will cooperate with
each other in any arrangement reasonably designed to provide for
Purchaser the benefits of, and to permit Purchaser to assume (and
Purchaser hereby assumes and agrees to pay, perform and discharge,
as and when due) all liabilities and obligations under and related
to the particular Asset, including enforcement at the request and
expense and for the benefit of Seller of any and all rights of
Seller against a third party thereto arising out of the breach or
cancellation thereof by such third party or otherwise. Any transfer
or assignment to Purchaser by Seller of any Asset, property or
property rights or any contract or agreement which shall require
the consent or approval of any third party shall be made subject to
such consent or approval being obtained.
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6.
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Covenant
Against Competition; Non-solicitation .
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6.1
Covenant Not to
Compete . Subject to the
substantial performance of each of the Purchaser and Purchaser
Parent with its respective covenants and obligations hereunder and
there having been no material breach of any representation or
warranty by Purchaser or Purchaser Parent, Seller and Parent,
including any other entity which at the time of a breach, if any,
of this Section 6.1 is under the control of the Seller or Parent
(collectively, “Seller’s Group”), respectively,
covenant and agree that it shall not at any time within the two (2)
year period commencing as of the Closing Date (a) compete, directly
or indirectly, with Purchaser with respect to the Embassy Business
in the design, development, engineering, manufacture, marketing and
selling of the Products, whether for its own benefit or account, or
on behalf of or in conjunction with any other person, firm,
proprietorship, partnership, joint venture, limited liability
company, corporation, or other business entity, (b) have any
ownership interest in any firm, corporation, limited liability
company, partnership, proprietorship or other business that engages
with third parties in the activities now engaged in and in the
territory served by the Embassy Business, to the extent and
provided that Purchaser or any affiliate or any successor thereof
remains engaged in the Embassy Business; provided, however, that
Seller’s Group may own, directly or indirectly, solely as an
investment, securities of any entity which are publicly traded if
each member of Seller’s Group does not, directly or
indirectly, own five percent (5%) or more of any class of
securities of any such competitive entity, or (c) directly or
indirectly solicit any present or past (last sale within two (2)
years prior to the Closing Date) customer of the Embassy Business
for themselves, or any other person, firm, corporation, limited
liability company, partnership, proprietorship or other business
entity, for the purpose of obtaining business in competition with
the Embassy Business.
6.2
No Solicitation
. Seller and Parent respectively
covenant and agree that it (including any other entity which at the
time of a breach, if any, of this Section 6.2 is under the control
of the Seller or Parent) shall not at any time (a) during the
two (2) year period commencing as of the Closing Date, solicit any
Offered Non-Union Employee (as hereinafter defined) to discontinue
his or
her employment,
if any, with the Purchaser, or (b) during the two (2) year period
commencing as of the Closing Date, cause or entice any agent,
representative, distributor or supplier employed or engaged in the
Embassy Business to discontinue its relationship, if any, with the
Purchaser.
6.3
Remedies . Without waiving the Purchaser’s rights
to monetary damages, all parties to this Agreement acknowledge that
the breach of the obligations contained in this Section 6
would result in substantial but indeterminable harm to Purchaser,
that the restraints imposed are reasonable, that there is no
adequate remedy at law for a breach of such obligations, and that
therefore injunctive relief, specific performance or other
equitable remedies are appropriate to enforce the obligations
undertaken in this Section 6 . In the event that a court
finds that the term, territory, or scope of this Section 6
is too broad to be enforceable, Seller and Purchaser further agree
that a reformation of the terms of this Section 6 is
appropriate and should be undertaken by the court in order to
protect the value of the Assets being conveyed pursuant to this
Agreement, and to provide for the enforceability of the obligations
contained in this Section 6 to the fullest extent allowed by
law and equity.
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7.
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Representations and Warranties of
Seller .
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Seller represents and warrants to Purchaser as
of the Closing Date as follows:
7.1
Corporate Existence
. Seller is a corporation duly
organized, validly existing and in good standing under the laws of
the State of New York. Seller is in good standing and is qualified
to transact business as a foreign corporation in all states in
which the nature of the Embassy Business or the Assets requires it
to be so qualified. Seller has full corporate power and authority
to own, lease and operate its properties and carry on and conduct
the Embassy Business as it is now being conducted. Parent is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware. Parent is in good standing
and is qualified to transact business as a foreign corporation in
the State of New York.
7.2
Due Authorization and
Enforceability . Seller
has full corporate power and authority to execute and deliver this
Agreement and the Bill of Sale (as hereinafter defined), the
Assignment and Assumption Agreement (as hereinafter defined), the
Patent Assignment (as hereinafter defined), the Trademark
Assignment (as hereinafter defined), the Lease and the Escrow
Agreement, and the other documents, instruments and agreements to
which it is a party and which are to be delivered to Purchaser upon
the Closing Date pursuant to this Agreement (collectively, the
“Related Agreements”), and to consummate the
transactions contemplated hereby and thereby. Parent has full
corporate power and authority to execute and deliver this
Agreement. The execution and delivery of this Agreement and the
Related Agreements to which it is a party by Seller, and the
execution and delivery of this Agreement by Parent, and the
consummation of the transactions contemplated hereby and thereby
has been duly authorized by all necessary corporate actions of
Seller and Parent, respectively, including votes of the directors
and of the shareholder of Seller, and no other corporate action or
proceeding on the part of Seller or Parent is necessary to
authorize the execution and delivery of this Agreement or the
Related Agreements, or the consummation by Seller or Parent (as the
case may be) of the transactions contemplated hereby or thereby.
This Agreement has been duly executed and delivered by Seller and
Parent, and this Agreement and the Related Agreements to which
Seller is a party (when executed and delivered to Purchaser at the
Closing Date) are or will be legal, valid and binding obligations
of Seller, enforceable against Seller in accordance with
their
terms. This
Agreement (when executed and delivered to Purchaser at the Closing
Date) will be the legal, valid and binding obligation of Parent,
enforceable against it in accordance with its terms.
7.3
No Conflicts
. Except as set forth as Schedule
7.3 and/or Schedule 1.1.3 attached hereto: neither the
execution and delivery of this Agreement or the Related Agreements,
nor the consummation of the transactions contemplated hereby or
thereby will (i) conflict with or violate any provision of
the Certificate or Articles of Incorporation, Bylaws or other
charter documents of Seller or Parent, as applicable, (ii) conflict
with or violate any law, rule, regulation, ordinance, order, writ,
injunction, judgment or decree applicable to the Embassy Business
or by which any of the Assets are bound or affected or (iii)
conflict with or result in any breach of or constitute a default
(or an event which with notice or lapse of time or both would
become a default) under, or give to others any rights of
termination or cancellation of, or accelerate the performance
required by or maturity of, or result in the creation of any Lien
(other than Permitted Liens), on any of the material Assets,
pursuant to any of the terms, conditions or provisions of, any
note, bond, mortgage, indenture, permit, license, franchise, lease,
contract or other instrument or obligation to which Seller or
Parent is a party or by which any of the Assets are bound or
affected, except, in the case of (i) (ii) and (iii) above, for such
conflicts, violations, breaches, defaults, terminations,
cancellations and accelerations which in the aggregate will not
have a material adverse effect on the Assets or the Embassy
Business.
7.4
Financial Statements
. Attached hereto as Schedule
7.4 are the balance sheets of Seller as of December 31, 2003,
December 31, 2004, and March 31, 2005 (the “Balance
Sheet Date”), and the related statements of operations, for
the respective fiscal years and interim period then ended (all of
the foregoing referred to above in this Section 7.4 are herein
collectively referred to as the “Seller Financial
Statements”). The Seller’s balance sheet as of the
Balance Sheet Date is sometimes referred to in this Agreement as
the “Balance Sheet.” The Seller Financial Statements in
all material respects fairly present the assets, liabilities and
financial position of Seller as of the respective dates set forth
therein and the results of operations of Seller for the respective
periods set forth therein. The Seller Financial Statements have
been prepared in each case in conformity with GAAP applied on a
consistent basis throughout the periods involved.
7.5
No Material Adverse
Change . Except as set
forth on Schedule 7.5 , since the Balance Sheet Date,
there has been no material adverse change in the nature, business,
operations, properties, assets, liabilities (actual or contingent),
except for accounts payable and accrued expenses incurred in the
ordinary course of business of the Embassy Business, or in the
financial condition thereof, or in the manner of conducting the
Embassy Business, or in the condition or position of the Embassy
Business, other than changes in the ordinary course of business
which in the aggregate are not material and adverse or which are
adjusted for in accordance with Section 3 hereof. To the
Seller’s Knowledge, except as set forth on Schedule
7.5 , since the Balance Sheet Date, there has been no event or
condition of any character which, either individually or in the
aggregate, might reasonably be expected to affect in a material
adverse manner the business, operations, properties, assets,
liabilities, earnings or financial condition of Embassy Business or
the Assets. Without limiting the generality of the foregoing, and
since March 31, 2005, Seller has not, except in the ordinary course
of business:
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(1)
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paid any
dividend in respect of the Assets;
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(2)
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suffered any
damage, destruction or loss of any Asset, whether or not covered by
insurance, which exceeds $25,000;
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(3)
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sold, leased,
transferred, assigned, distributed or otherwise disposed of any
tangible Asset with a value in excess of $10,000, or any intangible
Asset, except for the sale of finished goods or repair parts in the
ordinary course of business and the replacement of certain
Assets;
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(4)
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changed its
payment practices relative to trade payables in such a manner that
the average age of Seller’s trade payables outstanding at the
Closing Date is inconsistent with Seller’s historical
practice as reflected in the Seller Financial Statements ;
or
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(5)
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offered any
cash discounts on trade receivables inconsistent with the
Seller’s historical practices as reflected in the Seller
Financial Statements.
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7.6
All Necessary Assets
. Except for the Excluded Assets,
the Assets being sold, transferred, conveyed, assigned and
delivered by Seller under this Agreement constitute all of the
assets used by Seller in the conduct of the Embassy Business in all
material respects.
7.7
Title to Assets
. Seller warrants that it owns the
Assets free and clear of all mortgages, pledges, liens, security
interests, assignments, conditional sales agreements, encumbrances,
claims or charges of any kind (“Liens”), except for
Permitted Liens or Liens to be discharged at Closing. At the
Closing Date, none of the Assets will be subject to any commitment
or other arrangement for its sale or use by third parties except
under Material Agreements disclosed in Schedule 1.1.3. For
purposes of this Agreement, the term “Permitted Liens”
means: (i) Liens for Taxes not yet due and payable or
being contested in good faith, an adverse outcome from which would
not result in a material adverse effect on the Assets or the
Embassy Business, and (ii) minor imperfections of title, none of
which, individually or in the aggregate, materially detracts from
the value of the affected properties in the manner such properties
currently are being used, or materially impairs the operations of
the Embassy Business or the Assets. Schedule 7.7 sets forth Liens
to be discharged at Closing with respect to the Assets. For
purposes of this Agreement, this representation and warranty does
not apply to the Receivables or the Inventory, each of which being
the subject of separate representations and warranties.
7.8
Machinery and
Equipment;
Condition of Assets . The Machinery & Equipment included
in the Assets set forth in Schedule 1.1.1 are in good
operating condition and repair, ordinary wear and tear excepted,
and are reasonably satisfactory for the purposes for which the
Assets are being used, and are capable of being used to carry on
the Embassy Business consistent with past practice.
7.9
Compliance with Laws
. To Seller’s Knowledge, the
operation of the Embassy Business and the use of the Assets comply
in all material respects with all applicable laws, ordinances,
rules, decrees, orders and regulations, including federal and state
and local environmental, health and safety laws, rules and
regulations, and material laws related to employment practices and
payroll, except where failure to comply with any of the foregoing
in the
aggregate would
not have a material adverse effect on the Assets or the Embassy
Business (collectively the “Laws”). To Seller’s
Knowledge, Seller has obtained all necessary material Permits and
has filed all required material notices with federal, state and
local governmental bodies that are required
by applicable Laws for the use of the Assets and in order to
conduct Embassy Business as presently conducted, all of which are
valid and effective as of the Closing Date, and all payments, fees
and costs thereof have been paid in full to the Closing Date.
Seller has not received written notice of any material violations
of any Laws or any material covenants or material Contracts with
respect to the Embassy Business or any of the Assets, and to
Seller’s Knowledge, no such notice of violations is pending
or has been threatened.
7.10
Absence of Litigation
. Except as set forth on Schedule
7.10 attached hereto, there are no judgments or other judicial
or administrative orders outstanding against Seller that if
determined adversely to Seller would materially adversely impair
the right or ability of Seller to carry on the Embassy Business as
it is now conducted or would materially adversely affect the
financial condition of Seller. Except as set forth on Schedule
7.10 attached hereto, there is no action, suit or proceeding at
law or in equity or by or before any governmental or administrative
instrumentality or other agency now pending or, to the
Seller’s Knowledge, threatened against or affecting Seller or
the Assets which, if adversely determined, would materially impair
the right or ability of Seller to carry on the Embassy Business as
it is now conducted or would materially adversely affect the
financial condition of Seller.
7.11
Material Agreements
. Schedule 1.1.3 is an
accurate and complete list of all of Seller’s Material
Agreements required to be listed thereon pursuant to this
Agreement. Each of the Material Agreements is valid and effective
in accordance with its terms. True and correct copies of the
written Material Agreements have been furnished to Purchaser by
Seller. Except as set forth on Schedule 7.11 attached
hereto, at the Closing Date, all required consents to the
assignment by Seller to Purchaser of Seller’s rights under
the Material Agreements will have been obtained by Seller. To
Seller’s Knowledge no party to any of the Material Agreements
is in material default thereunder and no event has occurred, which
with the passage of time or the giving of notice or both would
constitute a material default under any of the Material
Agreements.
7.12
Receivables
. The Receivables being conveyed
hereunder will, at the Closing Date, be owned by Seller. Seller
shall guarantee the collectibility of the gross Receivables, as
finally determined and set forth on the Closing Statement in
accordance with the provisions of this Agreement, to the extent
that, following reasonable collection efforts by or on behalf of
Purchaser and Purchaser Parent (consistent with the past practices
of Seller), the amount of uncollected gross Receivables six months
following the Closing Date exceed an amount equal to 5.75% of the
gross Receivables set forth on the Closing Statement, (it being
understood that for purposes of determining the Closing Statement,
a reserve equal to 5.75% of the gross Receivables will be utilized
and Seller is guarantying collectibility of the Receivables to the
extent uncollectible Receivables exceed such reserve).
7.13
Intellectual Property
. Schedule 1.1.4(a) lists
Registered Intellectual Property owned by Seller and material to
the conduct of the Embassy Business as of the Closing Date. All of
the Intellectual Property is owned or lawfully used by Seller in
the conduct of the Embassy Business. To Seller’s Knowledge,
none of the Intellectual Property has been held or stipulated to be
invalid in any
litigation
which has been concluded to which Seller was a party, and to
Seller’s Knowledge the validity of the Intellectual Property
has not been questioned in any litigation currently pending or
which has been threatened. Seller will have conveyed to Purchaser
at the Closing Date all Intellectual Property used in and material
to the Embassy Business (or Purchaser will have the right to use
such Intellectual Property on similar terms and conditions). The
Intellectual Property does not, to Seller’s Knowledge,
infringe any patent, trademark, tradename, service mark, copyright
or other rights owned by others, nor, during the three (3) year
period ending as of the Closing Date, has Seller received any
written notice of conflict thereof with the asserted rights of
others. To Seller’s Knowledge, all registration and
maintenance fees due and payable on or before the Closing Date with
respect to any registered patent, trademark, service mark, or
copyright has been or will be paid prior to the Closing Date. Each
registered patent, trademark, service mark, or copyright set forth
in Schedule 1.1.4 is valid and in full force and effect, and
has not been allowed to lapse or expire by the failure of Seller to
elect to continue the registration thereof or to pay any
registration or maintenance fees with respect therewith.
7.14
Related Party
Agreements . Except as
set forth on Schedule 7.14 attached hereto, no affiliate,
officer or director of Seller or Parent, nor any related person
has, directly or indirectly, entered into any transaction with
Seller relating to the Embassy Business during the three (3) year
period ended as of the Closing Date, except on terms substantially
similar to those that could be obtained with third-parties with
respect to like transactions. For purposes of this Agreement, the
term “related person” shall mean and include any person
related to any officer or director of Seller or Parent by blood or
by marriage, or any corporation, partnership,
proprietorship,
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