ASSET PURCHASE AGREEMENT

 

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                                                                   EXHIBIT 10.32

 

                            ASSET PURCHASE AGREEMENT

 

     AGREEMENT dated November 12, 2004, among QualMark ACG Corporation, a

Colorado corporation ("Purchaser"), QualMark Corporation, a Colorado corporation

("Parent"), and ACG Dynamics, Inc., a Connecticut corporation ("Seller").

 

     WHEREAS, Seller desires to sell to Purchaser, and Purchaser desires to

purchase from Seller, substantially all the assets of Seller, upon the terms

hereinafter set forth; and

 

     WHEREAS, Purchaser is a wholly-owned subsidiary of Parent, which has agreed

to take some actions on behalf of Purchaser, and which also has some rights and

obligations under this Agreement (Parent and Purchaser are collectively referred

to herein as "QualMark").

 

     NOW, THEREFORE, in consideration of the covenants set forth herein and in

reliance on the representations and warranties contained herein, the parties

hereto hereby agree as follows:

 

     Section 1. Purchase and Sale of Assets.

 

     1.1. Acquired Assets.

 

          (a) On the Closing Date (as hereinafter defined), Seller shall sell,

assign, transfer and deliver, unto Purchaser, and its successors and assigns

forever, free and clear of all Liens (as defined in Section 5.4 hereof) (other

than rights of third parties under contracts assigned pursuant to this

Agreement), all right, title, interest and claims in or to the business,

properties and assets of Seller or used in Seller's business other than the

Excluded Assets (hereinafter defined), together with the goodwill of Seller, all

as the same shall exist on the date hereof, together with any additions thereto

after the date of this Agreement, (hereinafter sometimes together referred to as

the "Acquired Assets"), including without limitation the following assets:

 

          (i) all machines, equipment, tools, dies, molds, furniture, fixtures,

     trucks, automobiles, other vehicles, office supplies, and all other

     tangible personal property, including without limitation that property (A)

     described on Schedule l.l(a)(i) hereto, (B) used or dedicated to use in the

     operations of the business of Seller, (C) located at the premises operated

     by Seller (except, with respect to clauses (A) through (C) above, property

     leased by Seller, which shall be delivered at the Closing subject to such

     leases);

 

          (ii) the contracts, promissory notes, leases of personal property and

     agreements listed on Schedule l.l(a)(ii) hereto, and all other contracts,

     leases, agreements, promissory notes and other evidences of indebtedness to

     Seller (the "Contracts");

 

          (iii) all intangible assets and all rights, interests and claims of

     Seller in, to or under all intangible assets (including without limitation

     Seller's name and any trademarks, trade names or service marks under which

     Seller has operated, any copyrighted or copyrightable material, patents,

     patent applications, trade secrets, drawings, designs, formulas, customers'

     records, customer lists, supplier lists, pricing information, employee

     records, choses in action, claims), together with any goodwill associated

     with any of the foregoing, and including without limitation the intangible

     assets described on Schedule 1.1(a)(iii) hereto;

 

          (iv) all inventories, raw materials (including inventories and raw

     materials on order but not received as of the Closing Date),

     work-in-progress, finished goods ("Inventory");

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          (v) all claims, demands, judgments, rights, choses in action, accounts

     receivable, bills and notes receivable, documents, instruments, credits and

     deferred items; and

 

          (vi) all books, records and files of Seller relating to the business

     and operations of Seller for all periods ending on or before the Closing

     Date.

 

          (b) From and after the Closing Date, Purchaser shall give to Seller

free and unrestricted access to the books, files and records relating to the

business and operations of Seller prior to the Closing transferred to Purchaser

pursuant to Section l.l(a) hereof, as Seller shall from time to time reasonably

request. Any access pursuant to this Section l.l(b) shall be conducted in such a

manner as not to interfere unreasonably with the operations of the business of

Purchaser after the Closing Date.

 

     1.2. Excluded Assets. The Acquired Assets do not include the assets

(hereinafter collectively referred to as the "Excluded Assets") of Seller as

follows: (a) inventory sold after the date hereof for fair value in the ordinary

course of business consistent with prior practice; (b) cash, cash equivalents

and securities; (c) real property, buildings and all appurtenances (with the

exception of trade fixtures); (d) minute books and stock transfer ledger of

Seller; (e) counterclaims and cross claims to the extent relating to any

liability against which Seller indemnifies QualMark hereunder; (f) insurance

claims and rights under insurance policies to the extent relating to any

liability against which Seller indemnifies QualMark hereunder; (g) rights of

Seller under this Agreement; (h) the tangible personal property at Seller's

facility owned by the shareholders of Seller and listed on Schedule 1.2 hereto;

- (i) and contracts of employment of Seller, and any employees of Seller, except

those particular employees whom Parent has agreed to employ, as specifically set

forth herein; (j) Seller's Prepaid Federal Tax account; and (k) Seller's

property tax escrow.

 

     Section 2. Liabilities and Excluded Liabilities.

 

          (a) Purchaser shall assume on the Closing Date and, effective as of

the Closing and contingent upon the occurrence of the Closing, shall discharge

in accordance with their terms (subject to any defenses or claimed offsets

asserted in good faith against the obligee to whom such liabilities, payments

and obligations are owed), all liabilities, payments or obligations of Seller

(absolute, contingent or otherwise) arising out of the business and operations

of Seller or the ownership or operation of the Acquired Assets, including,

without limitation:

 

          (j) the current accrued liabilities of Seller to the extent of the

     amount thereof correctly stated on the Closing Date Balance

 

           (k) Sheet to be provided by Seller to Purchaser pursuant to Section

     2(c) below; and

 

          (ii) the continuing obligations under the Contracts arising subsequent

     to the Effective Time of the Closing (as hereinafter defined) based on

     operations subsequent thereto.

 

          (b) It is the intention of the parties that Purchaser assume only the

current accrued liabilities of Seller to the extent of the amount thereof

correctly stated on the Closing Date Balance Sheet; therefore, any provision in

Section 2(a) above to the contrary notwithstanding, Purchaser is not assuming,

and shall have no obligation to pay, perform, discharge or satisfy, any of the

following items (collectively the "Excluded Liabilities"), as to all of which

Seller hereby retains liability:

 

          (i) Any liability not listed in Section 2(a) above.

 

          (ii) The liability of Seller under that term loan with Chase (the

     "Chase Term Loan").

 

          (iii) Any and all liabilities to employees of Seller, including

     without limitation employment contracts, workers' compensation awards,

     incentive compensation accrued, pension costs accrued, benefits accrued or

     claims payable pursuant to the benefit plans of Seller, payroll, payroll

     tax accruals, and income, franchise, excise, sales, use, personal, real

     property and employment taxes (or any other taxes or similar imposts) to

     the extent that they relate to

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     the period prior to the Effective Time of the Closing or to termination of

     the employment of such employees as a result of this Agreement;

 

          (iv) Any and all liabilities and obligations to the extent that they

     pertain principally to any of the Excluded Assets, including but not

     limited to any mortgages, deeds of trust or notes secured by real property;

 

          (v) Any accounts payables owing to any subsidiary, affiliate or equity

     interest owner of Seller;

 

          (vi) Liabilities or obligations arising by virtue of the sale and

     purchase pursuant to this agreement, including but not limited to any taxes

     owed by Seller as a result of this Agreement;

 

          (vii) Any and all liabilities related to the release of any hazardous

     or toxic substance or the violation of any environmental law relating to

     the operation of Seller's business prior to the Effective Time of the

     Closing;

 

          (viii) Any and all liabilities for OSHA and other worker safety

     matters, taxes, noncompliance with applicable laws or regulations, personal

     injury, death or property damage, relating to the operation of Seller's

     business prior to the Effective Time of the Closing; and

 

          (ix) Such other obligations and liabilities of Seller as are expressly

     stated herein to be the continuing responsibility of Seller.

 

          (c) Seller shall prepare and furnish to Purchaser on or about November

11, 2004 a balance sheet of Seller as of the end of business on November 11,

2004 (the "Closing Date Balance Sheet"), prepared from the books and records of

Seller in a manner consistent with the accounting principles and methods as

defined below in Section 5.3. Such Closing Date Balance Sheet shall be certified

by the President of Seller, and shall show a ratio as of the Closing Date of

Acquired Assets to Current Liabilities (the "Closing Current Ratio") of at least

2.9:1.

 

     Section 3. Consideration.

 

     3.1. Purchase Price. The purchase price (the "Purchase Price") for the

Acquired Assets, the Noncompetition Agreements and the other considerations to

be supplied by Seller and its equity interest owners hereunder shall be

$1,650,000, payable as follows: (a) $50,000 paid by Parent on behalf of

Purchaser on October 1, 2004, the receipt of which is hereby confirmed by

Seller; (b) $850,000, payable at Closing (hereinafter defined) by wire transfer

to the account of Seller (a portion of such amount shall be paid by wire

transfer to Seller's lender to pay off Seller's existing bank financing); and

(c) a number of shares of the Common Stock, no par value per share, of Parent

(the "Securities") equal to $750,000, divided by the average closing price of

Parent's Common Stock over the thirty (30) days of trading immediately preceding

November 10, 2004 (September 28, 2004, through November 9, 2004, inclusive),

subject to the conditions and restrictions set forth in Sections 3.2 and 3.3

below. At Closing, Seller and Purchaser shall confirm in writing the calculation

of the average closing price of Parent's Common Stock over the thirty (30) days

of trading immediately preceding November 10, 2004 and the number of Securities

to be issued.

 

     3.2 Restricted Securities. Seller has directed that the Securities be

issued to its equity interest owners in the following names and proportions: 40%

of the shares to Mr. Andrew Grimaldi, 40% of the shares to Mr. Ken Keys, and 20%

of the shares to Mr. Kevin Tierney. (Mssrs. Grimaldi, Keys and Tierney are

hereinafter referred to as the "Equity Owners") The Securities will be

unregistered and restricted, and will be stamped with a "restricted" legend

indicating that the Securities may not be resold unless they are registered with

the SEC or are exempt from the registration process. QualMark shall have no

obligation to register the Securities or remove such legend; however, at Closing

the Purchaser shall deliver (a) addressed to each Equity Owner, an opinion of

Parent's counsel, that, under securities laws as of the Closing Date, if the

Securities of such Equity Owner are held for a period of one year after the

Closing Date without transfer, and if Parent completes in timely fashion all of

its filings required under the Securities Exchange Act of 1934, as amended (the

"Exchange Act"), then such Equity Owner shall thereafter be able to transfer

such Securities under Securities and Exchange Commission Rule 144, subject to

all of the restrictions of such Rule 144, and (b) to each Equity Owner, a letter

from Parent's Chief Financial Officer stating that the Securities are being

issued as of November 15. 2004, that any applicable 1-year holding period will

end on November 15, 2005. Copies of the form of both such letters are attached

hereto and made a part hereof as Schedule 3.2. Parent shall engage its counsel

to assist the Equity

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Owners in the sale of the Securities under Rule 144 by issuing opinions to the

extent reasonably required by Equity Owners' brokers or Parent's transfer agent,

and by performing any related work, but Parent shall not be required to pay more

than $10,000 in the aggregate for such opinions and related work; provided,

however, that if Parent's counsel will not for any reason issue such opinions

for any sale, and Equity Owners' counsel will issue such opinions, then Parent

shall pay Equity Owners' counsel to issue such opinions, but, in no case, more

than $10,000 in the aggregate. Parent shall cooperate with Equity Owners and

take all commercially reasonable steps within its reasonable control to make

sure that the Securities are saleable under Rule 144 and shall not take any

action to obstruct or cause the transfer agent to obstruct any sale of the

Securities under Rule 144, if not prohibited by applicable law. Trading of the

Securities will also be subject to any applicable insider trading restrictions.

By their execution of this Agreement Seller and the Equity Owners acknowledge

the restrictions on the Securities and agree to abide by all Securities and

Exchange Commission regulations (including but not limited to Rule 144) with

respect to their trading of the Securities. Each Equity Owner individually

agrees to indemnify QualMark with respect to his own violation of such

restrictions and/or failure to abide by such regulations, but in no

circumstances shall the Seller or an Equity Owner be liable for any act or

omission of another Equity Owner. The provisions of this Section 3.2 shall

survive termination of this Agreement. Parent shall complete and file in a

timely fashion through December 31, 2006 all filings under the Exchange Act

necessary for the Purchaser to satisfy the current public information

requirement of Rule 144(c) under the Securities Act of 1933, as Amended.

 

     3.3 Notes and Purchaser's Option to Convert. Purchaser shall issue

promissory notes (the "Notes") in the form set forth in Schedule 3.3 payable to

the Equity Owners as follows: $300,000 to Mr. Andrew Grimaldi, $300,000 to Mr.

Ken Keys, and $150,000 to Mr. Kevin Tierney. The Notes will be transferable,

bear interest at the annual rate of 6.5%, and will be payable in equal monthly

installments of principal and interest, with the first such payment payable on

February 15, 2005, and the last such payment due on the fifth (5th) anniversary

of the Closing Date. Schedule 3.3 to this Agreement sets forth such payments to

made on each of the Notes. At Closing the Notes will be placed in escrow with

Seller's attorney under the Escrow Agreement set forth in Exhibit A. At any time

during the period of January 5, 2005 through January 15, 2005 Purchaser shall

have the option of recalling all the shares of the Securities issued in the

name(s) of all of the Equity Owners and exchanging them for the Note(s) issued

in the names of the corresponding Equity Owner(s). If the Securities are not

recalled by the Purchaser before January 16, 2005, the Escrow Agent shall return

the Notes to Purchaser on request of Purchaser. It is agreed by the parties

hereto and by the Equity Owners that this Section 3.3 shall survive the

termination of this Agreement and shall be specifically enforceable in a court

of equity.

 

     3.4 Allocation. Seller and Purchaser agree to enter into good-faith

discussions to determine, by the Closing, the allocated fair market value of the

Acquired Assets as follows:

 

                                        Accounts Receivable

                                        Inventory

                                        Furniture, Fixtures and Equipment

                                        Covenant not to Compete

                                        Customer List

                                        Goodwill

 

                                         TOTAL $1,650,000

 

     Such allocation shall be memorialized in a letter agreement between Seller

and Purchaser to be executed at Closing, and shall be binding on Purchaser and

Seller for all federal, state and local tax purposes. Purchaser and Seller shall

file with their respective federal income tax returns forms that shall reflect

such allocation.

 

     Section 4. Closing. Provided that the conditions in Sections 8 and 9 hereof

have been satisfied or waived, the consummation of the purchase and sale of the

Acquired Assets contemplated by this Agreement (the "Closing") shall, unless

another date or place is agreed to in writing by Seller and Purchaser, take

place at the offices of Akabas & Cohen, on November 15, 2004 (the "Closing

Date"). All references contained herein to "the Effective Time of the Closing"

shall be deemed to refer to the close of business on the date that the

consummation of the transaction contemplated hereby is completed.

 

     Section 5. Representations and Warranties of Seller. Seller represents and

warrants to QualMark as follows, and acknowledges and confirms that each such

representation and warranty shall be deemed to be material and

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that QualMark is relying upon such representations and warranties in connection

with the execution, delivery and performance of this Agreement, notwithstanding

any investigation made by QualMark or on its behalf.

 

     5.1. Organization and Good Standing.

 

          (a) Seller is a corporation duly organized, validly existing and in

good standing under the laws of the state of its incorporation and is qualified

to transact business and is in good standing as a foreign corporation in the

jurisdictions where it is required to qualify.

 

          (b) Seller has the power and authority (corporate and otherwise) to

own, lease and operate its properties and to carry on its business as now

conducted.

 

          (c) Seller has no subsidiaries or equity investments in any entities.

 

     5.2. Consents, Authorizations and Binding Effect.

 

          (a) Seller may execute, deliver and perform this Agreement without the

necessity of obtaining any consent, approval, authorization or waiver or giving

any notice or otherwise, except as set forth on Schedule 5.2 hereto.

 

          (b) This Agreement has been duly authorized, executed and delivered by

Seller and constitutes the legal, valid and binding obligation of Seller,

enforceable in accordance with its terms. The execution, delivery and

performance of this Agreement will not:

 

           (i) constitute a violation of the Certificate or Articles of

     Incorporation or the By-Laws, as amended, of Seller;

 

          (ii) conflict with, result in the breach of, constitute a default,

     with or without notice and/or lapse of time, under, result in being

     declared void or voidable any provision of, or result in any right to

     terminate or cancel any contract, lease, agreement, license, commitment or

     purchase order to which Seller or any of its properties is bound;

 

          (iii) constitute a violation of any statute, judgment, order, decree

     or regulation or rule of any court, governmental authority or arbitrator

     applicable or relating to Seller, the Acquired Assets or the business of

     Seller to be acquired by Purchaser pursuant hereto; or

 

          (iv) result in the acceleration of any debt or other obligation of

     Seller or the creation of any Lien (as defined in Section 5.4) upon any of

     the Acquired Assets.

 

     5.3. Financial Statements and Financial Condition.

 

          (a) Seller has maintained its books of account in accordance with

applicable laws, rules and regulations, and such books and records are and,

during the periods covered by the Financial Statements (hereinafter defined),

were correct and complete in all respects, and completely and accurately reflect

the transactions of Seller's business and the income, expenses, assets and

liabilities of Seller, including the nature thereof and the transactions giving

rise thereto.

 

          (b) Included in Schedule 5.3 are the reviewed balance sheets of Seller

as of September 30, 2003 and September 30, 2004, and the related unaudited

statements of income and of cash flows for the fiscal year ended each such

September 30th (collectively the "Financial Statements"). The reviewed balance

sheet of Seller as of September 30, 2004, is referred to in this Agreement as

the "Balance Sheet.

 

          (c) The Financial Statements have been prepared from the books of

account of Seller in accordance with GAAP, except for the valuation of

inventory, which has been valued according to the method described on Schedule

5.5 hereto, and present fairly the financial position of the business of Seller

as of the date of such

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statements and the results of operations of the business of Seller for the

periods covered thereby. The Financial Statements reflect all necessary

adjustments and reserves for losses and contingencies as of the date of such

statements.

 

          (d) Seller has no material liabilities (including, without limitation,

unasserted claims, whether known or unknown, matured or unmatured, absolute,

contingent or otherwise) that are required to be reflected, and are not

reflected or are in excess of the amount reflected, in the Balance Sheet or

notes thereto except those incurred since the date of the Balance Sheet in the

ordinary course of business, consistent with past practice, in arms' length

transactions with unrelated parties, and which do not have and cannot reasonably

be expected to have, in the aggregate, a material adverse effect on the

business, financial condition or prospects of Seller (a "Material Adverse

Effect").

 

     5.4. Title and Condition of Assets.

 

          (a) Except as otherwise disclosed on Schedule 5.4 hereto, Seller has,

and pursuant to this Agreement Seller will sell, transfer, assign and deliver to

Purchaser, good and marketable title to the Acquired Assets, free and clear of

liens, encumbrances, claims of third parties, security interests, mortgages,

pledges, agreements, options and rights of others of any kind whatsoever,

whether or not filed, recorded or perfected, and including, without limitation,

any conditional sale or title retention agreement or lease in the nature thereof

or any financing statements filed in any jurisdiction or any agreement to give

any such financing statements (hereinafter collectively referred to as "Liens"),

other than rights of third parties under leases of tangible personal property

disclosed on Schedule 5.4(a) hereto and liens for taxes not due and payable.

 

          (b) The equipment included in the Acquired Assets is in operating

condition and constitutes sufficient equipment necessary to operate the business

of Seller as conducted during the year prior to the date hereof. None of the

Acquired Assets has been affected by any fire, accident, act of God or any other

casualty that materially and adversely impairs its function in the business of

Seller. The business of Seller is not conducted under any restriction imposed

upon Seller, but not imposed upon other similar businesses in the locality where

its business is located.

 

          (c) Schedule 1.1(a)(i) hereto includes a complete and correct list and

a summary description of substantially all material tangible personal property

in the nature of machinery and equipment owned or leased by Seller and used in

connection with the business of Seller.

 

          (d) Schedule 1.1(a)(i) hereto includes a complete and correct list and

a summary description of substantially all material contracts used in connection

with the business of Seller. The Contracts are good and valid, and enforceable

in accordance with their terms. No consents or approvals are necessary to assign

to and vest in Purchaser all of Seller's interest in the Contracts, except the

Contracts listed on Schedule 5.4(d) hereto. Seller is not in material default

under any of the Contracts and has no knowledge of any material default by any

other party thereto.

 

     5.5. Inventories. The inventories of Seller reflected on the Balance Sheet

have been valued in Seller's reasonable determination of fair market value in

accordance with Schedule 5.5 hereof, and the value of obsolete materials and

materials of below standard quality has been written down.

 

     5.6. Receivables. The trade accounts and other receivables of Seller are

bona fide receivables and arose out of arms' length transactions, are recorded

correctly on the books and records of Seller, and are not subject to any

offsetting claims or adjustments, known to Seller, except to the extent of any

reserves therefor reflected on the Balance Sheet or added by Seller in the

ordinary course of business since the date of the Balance Sheet, consistent with

prior practice.

 

     5.7. Insurance.

 

          (a) Schedule 5.7 hereto sets forth (i) a list of all policies of

insurance maintained by Seller, including insurance providing benefits for

employees, in effect on the date hereof; (ii) a description of the coverage of

such policies; and (iii) the annual premiums therefor and the underwriter and

expiration dates thereof.

 

          (b) There are no claims pending or, to the best knowledge of Seller,

threatened under Seller's casualty or liability insurance policies, and no claim

has been made thereunder during the three years preceding the date hereof. All

premiums due and payable thereon have been paid, and all such policies are in

full force and effect in

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accordance with their respective terms. Such policies are underwritten by

financially sound and reputable insurers and constitute commercially reasonable

insurance coverage in respect of Seller's past practice and companies similarly

situated with Seller. There are no outstanding claims or liabilities, whether

fixed or contingent, known to Seller, under any medical reimbursement plan or

any other plan, policy or arrangement under which Seller acts as a self-insured.

 

     5.8. Litigation and Compliance.

 

          (a) There are no actions, suits, claims or proceedings or governmental

or administrative investigations pending or, to the best knowledge of Seller,

threatened, nor, to the best knowledge of Seller, is there any reasonable basis

for any such action, suit, claim or proceeding (i) by, against or otherwise

involving Seller, Seller's officers, directors, employees or agents, any of the

Acquired Assets or any asset or property of others leased or used by Seller

pursuant to an agreement to be assigned by Seller or (ii) which questions or

challenges the validity of this Agreement or any action taken or to be taken

pursuant to this Agreement.

 

          (b) Seller possesses all material p