ASSET PURCHASE AGREEMENT
by and among
CRESTLINE PACKAGING SOLUTIONS LLC, a Delaware limited liability company ("Buyer"),
VOSS CHEMICAL INDUSTRIES, INC., a New York corporation ("Seller"),
and
FREDERICK G. VOSS and ELENA M. VOSS (solely for purposes of Article VII and Article IX) (the "Seller Principals")
Dated as of [●], 2022
Calderwood & Harkness LLP 1114 Avenue of the Americas, 32nd Floor New York, NY 10036
TABLE OF CONTENTS
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EXHIBITS
DISCLOSURE SCHEDULES
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered into as of [●], 2022, by and among:
CRESTLINE PACKAGING SOLUTIONS LLC, a Delaware limited liability company ("Buyer");
VOSS CHEMICAL INDUSTRIES, INC., a New York corporation ("Seller"); and
FREDERICK G. VOSS and ELENA M. VOSS (each, a "Seller Principal" and, collectively, the "Seller Principals"), solely for purposes of Article VII and Article IX hereof.
Buyer, Seller, and the Seller Principals are sometimes referred to herein individually as a "Party" and collectively as the "Parties."
RECITALS
A. Seller is a corporation duly organized and validly existing under the laws of the State of New York, engaged in the business of formulating, manufacturing, and selling specialty and performance coatings, including, without limitation, the product line known as "ProShield Industrial Coatings" (the "Business" or "Product Line"). The Business is conducted by Seller principally from its manufacturing facility located at 790 Niagara Falls Boulevard, Tonawanda, New York 14150 (the "Tonawanda Facility").
B. Seller desires to sell, convey, assign, transfer, and deliver to Buyer, and Buyer desires to purchase and acquire from Seller, substantially all of the assets used in or related to the ProShield Industrial Coatings product line, upon the terms and subject to the conditions set forth herein.
C. Buyer is a limited liability company duly organized and validly existing under the laws of the State of Delaware, with its principal offices located at 4100 Rockside Road, Suite 300, Independence, Ohio 44131. Buyer is a portfolio company of Kestrel Capital Partners Fund III, LP, a Delaware limited partnership (the "Sponsor"), and is engaged in the business of manufacturing and distributing industrial packaging solutions and specialty coatings products.
D. Frederick G. Voss serves as President and holds approximately sixty-two percent (62%) of the issued and outstanding shares of capital stock of Seller, and Elena M. Voss serves as Vice President of Operations and holds approximately thirty-eight percent (38%) of the issued and outstanding shares of capital stock of Seller. Each Seller Principal is entering into this Agreement solely for the
E. Certain capitalized terms used herein are defined in Article I or as otherwise specified throughout this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants, agreements, representations, and warranties contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, hereby agree as follows:
ARTICLE I — DEFINITIONS
Section 1.1 — Defined Terms
As used in this Agreement, the following terms shall have the meanings set forth below:
"Acquired Assets" has the meaning set forth in Section 2.1.
"Affiliate" means, with respect to any Person, any other Person that directly or indirectly controls, is controlled by, or is under common control with such Person. For purposes of this definition, "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise.
"Agreement" means this Asset Purchase Agreement, including all Exhibits and Schedules attached hereto, as the same may be amended, restated, supplemented, or otherwise modified from time to time in accordance with Section 11.6.
"Allocation Schedule" means the schedule setting forth the allocation of the Purchase Price (including any Earnout Amount, to the extent paid) among the Acquired Assets in accordance with Section 1060 of the Code and the Treasury Regulations promulgated thereunder, attached hereto as Exhibit F.
"Ancillary Agreements" means the Bill of Sale, the Assignment and Assumption Agreement, the Escrow Agreement, the IP Assignment Agreement, and the Transition Services Agreement, and each other agreement, instrument, certificate, or document to be executed and delivered in connection with the transactions contemplated by this Agreement.
"Applicable Law" means any law, statute, regulation, ordinance, rule, order, decree, judgment, consent decree, settlement agreement, or other requirement of any Governmental Authority, in each case as in effect from time to time and applicable to the Person, asset, or matter in question.
"Assignment and Assumption Agreement" means the Assignment and Assumption Agreement, substantially in the form attached hereto as Exhibit D, to be executed and delivered by Buyer and Seller at the Closing.
"Assumed Contracts" has the meaning set forth in Section 2.1(e).
"Assumed Liabilities" has the meaning set forth in Section 2.3.
"Basket Amount" means
"Base Purchase Price" means Eighteen Million Dollars ($18,000,000), consisting of the Closing Payment, the Escrow Amount, and the target Earnout Amount of One Million Five Hundred Thousand Dollars ($1,500,000).
"Benefit Plan" means each employee benefit plan (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")), whether or not subject to ERISA, and each other compensation, bonus, incentive, equity, severance, change-in-control, retention, deferred compensation, pension, retirement, savings, health, welfare, life insurance, disability, fringe benefit, or other benefit plan, program, policy, agreement, or arrangement, in each case maintained, sponsored, contributed to, or required to be contributed to by Seller for the benefit of any employee or former employee of the Business, or with respect to which Seller has any liability or obligation.
"Bill of Sale" means the Bill of Sale, substantially in the form attached hereto as Exhibit A, to be executed and delivered by Seller at the Closing.
"Business" or "Product Line" means the ProShield Industrial Coatings product line as conducted by Seller, including the formulation, manufacture, marketing, sale, and distribution of specialty and performance industrial coatings under the ProShield brand name.
"Business Day" means any day other than a Saturday, a Sunday, or a day on which banking institutions in the City of New York, State of New York, are authorized or required by Applicable Law to be closed.
"Buyer" has the meaning set forth in the preamble to this Agreement.
"Buyer Indemnitees" means Buyer, its Affiliates, and their respective officers, directors, managers, members, employees, agents, successors, and permitted assigns.
"Cap" or "Indemnification Cap" means
"Closing" has the meaning set forth in Section 3.1.
"Closing Date" has the meaning set forth in Section 3.1.
"Closing Net Working Capital" means the actual Net Working Capital of the Business as of the close of business on the day immediately preceding the Closing Date, as finally determined pursuant to Section 2.6.
"Closing Payment" means Fourteen Million Five Hundred Thousand Dollars ($14,500,000), subject to adjustment as set forth in Section 2.6(b).
"Code" means the Internal Revenue Code of 1986, as amended, and any successor statute thereto, and the Treasury Regulations promulgated thereunder.
"Confidential Information" means all non-public, confidential, or proprietary information relating to the Business, the Acquired Assets, the ProShield product line, or the operations, customers, suppliers, employees, technology, formulations, trade secrets, financial condition, or business plans of the Business, whether in written, oral, electronic, or other form, and whether or not marked or identified as "confidential," including all customer lists, supplier lists, pricing information, formulation data, manufacturing processes, quality control procedures, marketing strategies, and financial projections.
"Disclosure Schedules" means the disclosure schedules delivered by Seller to Buyer concurrently with the execution and delivery of this Agreement, as the same may be updated or supplemented in accordance with the terms of this Agreement.
"Earnout Amount" has the meaning set forth in Section 2.7(b).
"Earnout Period" means the twenty-four (24) month period commencing on the and ending on the date that is twenty-four (24) months thereafter.
"Earnout Statement" has the meaning set forth in Section 2.7(c).
"Earnout Stretch" means
"Earnout Target" means Three Million (3,000,000) gallons.
"Earnout Threshold" means Two Million Four Hundred Thousand (2,400,000) gallons.
"Environmental Law" means any and all Applicable Laws relating to pollution, contamination, protection of the environment, natural resources, or human health and safety (as it relates to exposure to Hazardous Substances), including the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (42 U.S.C. § 9601, et seq.) ("CERCLA"), the Resource Conservation and Recovery Act of 1976, as amended (42 U.S.C. § 6901, et seq.) ("RCRA"), the Clean Air Act (42 U.S.C. § 7401, et seq.), the Federal Water Pollution Control Act (33 U.S.C. § 1251, et seq.) (the "Clean Water Act"), the Toxic Substances Control Act (15 U.S.C. § 2601, et seq.) ("TSCA"), the Emergency Planning and Community Right-to-Know Act (42 U.S.C. § 11001, et seq.) ("EPCRA"), and all analogous state and local laws, including the New York Environmental Conservation Law and the New York State Superfund Act.
"Escrow Agent" means Pinnacle Trust Company, in its capacity as escrow agent under the Escrow Agreement.
"Escrow Agreement" means the Escrow Agreement, substantially in the form attached hereto as Exhibit B, to be entered into among Buyer, Seller, and the Escrow Agent at or prior to the Closing.
"Escrow Amount" means Two Million Dollars ($2,000,000).
"Escrow Release Date" means the date that is months following the Closing Date.
"Estimated Closing Net Working Capital" means the estimated Net Working Capital as of the close of business on the day immediately preceding the Closing Date, as set forth in the Estimated Closing Statement delivered by Seller pursuant to Section 2.6(a).
"Estimated Closing Statement" has the meaning set forth in Section 2.6(a).
"Excluded Assets" has the meaning set forth in Section 2.2.
"Excluded Liabilities" has the meaning set forth in Section 2.4.
"Final Closing Statement" has the meaning set forth in Section 2.6(c).
"Fundamental Representations" means the representations and warranties of Seller set forth in Section 4.1 (Organization and Good Standing), Section 4.2 (Authority; Binding Effect), Section 4.4 (Title to Acquired Assets), and the representations and warranties of Buyer set forth in Section 5.1 (Organization and Good Standing), Section 5.2 (Authority; Binding Effect), and Section 5.6 (Brokers).
"GAAP" means United States generally accepted accounting principles as in effect from time to time, consistently applied throughout the periods involved.
"Gallons Shipped" means the number of gallons of ProShield-branded coatings (including any successor or replacement brand adopted by Buyer for the same product formulations) shipped by Buyer or its Affiliates to customers during the applicable measurement period, as recorded in Buyer's books and records maintained in accordance with Section 2.7(f). For the avoidance of doubt, "Gallons Shipped" shall include gallons shipped to any customer, whether or not such customer was a customer of the Business prior to the Closing Date, but shall exclude gallons of any coating product that does not constitute a product previously sold under the ProShield brand name or a product manufactured using any of the forty-seven (47) proprietary formulations included in the Acquired Assets.
"Governmental Authority" means any federal, state, local, municipal, or foreign government or any instrumentality, subdivision, court, tribunal, administrative agency, commission, or other authority thereof, or any quasi-governmental or private body exercising any regulatory, taxing, importing, or other governmental or quasi-governmental authority.
"Hazardous Substances" means any pollutant, contaminant, waste, chemical, substance, material, constituent, or compound that is regulated, classified, or otherwise characterized under any Environmental Law as "hazardous," "toxic," "radioactive," "dangerous," "a contaminant," "a pollutant," or words of similar meaning or effect, including petroleum and petroleum products, asbestos and asbestos-containing materials, polychlorinated biphenyls, radon, per- and polyfluoroalkyl substances (PFAS), and urea formaldehyde.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder. The Parties acknowledge that no filing under the HSR Act is required in connection with the transactions contemplated by this Agreement, as the applicable size-of-transaction threshold is not met.
"Independent Accountant" means Halcyon Chartered Accountants LLP, or such other nationally or regionally recognized independent accounting firm as may be mutually agreed upon in writing by Buyer and Seller. The Independent Accountant shall not have performed audit, review, or other services for either Buyer or Seller during the twenty-four (24) month period preceding the date of its engagement hereunder, except with respect to the engagement contemplated by this Agreement.
"intellectual Property" means all intellectual property and industrial property rights of every kind and nature, whether arising under the laws of the United States, any state thereof, or any foreign jurisdiction, whether registered or unregistered, including all (a) patents, patent applications, patent disclosures, and invention disclosures (including all reissues, continuations, continuations-in-part, divisions, revisions, extensions, and re-examinations thereof); (b) trademarks, service marks, trade names, trade dress, logos, slogans, and internet domain names, together with all goodwill associated therewith; (c) copyrights and copyrightable works; (d) trade secrets, know-how, inventions, processes, techniques, methods, formulations, compositions, algorithms, data, databases, and other confidential or proprietary information; and (e) all registrations, applications, and renewals for any of the foregoing.
"IP Assignment Agreement" means the intellectual Property Assignment Agreement, substantially in the form attached hereto as Exhibit E, to be executed and delivered by Seller at the Closing.
"Knowledge of Seller" or "Seller's Knowledge" means the actual knowledge of Frederick G. Voss and Elena M. Voss, in each case
"Lien" means any lien, pledge, mortgage, deed of trust, security interest, encumbrance, charge, claim, easement, encroachment, restriction, option, preemptive right, right of first offer, right of first refusal, or other similar right or restriction of any kind or nature, whether arising by contract, operation of law, or otherwise.
"Losses" means any and all damages, losses, liabilities, obligations, claims, demands, judgments, fines, penalties, interest, costs, and expenses (including reasonable attorneys' fees and expenses and reasonable costs of investigation, preparation, and litigation), but excluding, subject to Section 9.4(g), punitive, speculative, and consequential damages.
"Material Adverse Effect" means any event, occurrence, fact, condition, change, development, or effect that, individually or in the aggregate with all other events, occurrences, facts, conditions, changes, developments, or effects, has had, or would reasonably be expected to have, a material adverse effect on (a) the business, assets, liabilities, condition (financial or otherwise), results of operations, or prospects of the Business, taken as a whole, or (b) the ability of Seller to consummate the transactions contemplated by this Agreement; provided, however, that none of the following, either alone or in combination, shall be deemed to constitute, or shall be taken into account in determining whether there has been, a Material Adverse Effect: (i) changes in general economic, financial, or market conditions; (ii) changes affecting the specialty coatings industry generally; (iii) changes in Applicable Law or GAAP (or interpretations thereof); (iv) changes arising from natural disasters, pandemics, epidemics, acts of God, hostilities, acts of war or terrorism, or any escalation thereof; (v) the announcement or pendency of the transactions contemplated by this Agreement; (vi) any action taken or omitted to be taken by Seller at the written request of or with the prior written consent of Buyer; or (vii) any failure by the Business to meet any internal or published projections, forecasts, estimates, or predictions of revenue, earnings, or other financial metrics for any period (it being understood that the underlying facts giving rise to such failure may be taken into account in determining whether a Material Adverse Effect has occurred); except, in the case of clauses (i), (ii), (iii), and (iv) above, to the extent that such changes, events, or conditions disproportionately affect the Business relative to other businesses operating in the specialty coatings industry.
"Material Contract" means any contract, agreement, arrangement, commitment, or understanding (whether written or oral) to which Seller is a party or by which Seller or any of the Acquired Assets is bound, that (a) involves aggregate annual payments or receipts in excess of One Hundred Thousand Dollars ($100,000); (b) has a remaining term in excess of twelve (12) months and is not terminable by Seller without penalty upon sixty (60) days' or fewer days' notice; (c) limits or restricts the ability of Seller to compete in any line of business or in any geographic area; (d) relates to the lease of real property; (e) involves the licensing of intellectual Property (other than off-the-shelf software licenses); (f) constitutes a supply agreement with a sole-source supplier; or (g) is otherwise material to the conduct of the Business.
"Net Working Capital" has the meaning set forth in Section 2.6(e) and shall be calculated in accordance with the methodology set forth in Exhibit G.
"Outside Date" means February 28, 2023, or such later date as may be agreed upon in writing by Buyer and Seller.
"Permitted Liens" means (a) statutory liens for Taxes not yet due and payable or being contested in good faith by appropriate proceedings and for which adequate reserves have been established in accordance with GAAP; (b) mechanics', carriers', workers', repairers', materialmen's, warehousemen's, and other similar liens arising or incurred in the ordinary course of business securing obligations that are not overdue; (c) pledges and deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance, and other social security legislation; (d) zoning, entitlement, building, and other land use regulations imposed by any Governmental Authority having jurisdiction over real property, which are not violated by the current use or occupancy of such real property; and (e) such other imperfections of title, easements, covenants, restrictions, and encumbrances that do not, individually or in the aggregate, materially detract from the value of, or materially impair the use of, the Acquired Assets.
"Person" means any individual, corporation, partnership, limited partnership, limited liability company, joint venture, association, trust, estate, unincorporated organization, Governmental Authority, or other entity.
"ProShield Trademark" means United States Trademark Registration No. 2,876,411 for the mark "PROSHIELD" (and design), registered on the Principal Register of the United States Patent and Trademark Office, together with all goodwill associated therewith.
"Purchase Price" has the meaning set forth in Section 2.5.
"R&W Insurance Policy" means the representations and warranties insurance policy to be obtained by Buyer from Coventry Mutual Insurance Co., Policy No. CMI-RW-2023-0042, with a policy limit of Nine Million Dollars ($9,000,000) and a retention of Four Hundred Fifty Thousand Dollars ($450,000), as more particularly described in Section 5.7 and Section 6.10.
"Restricted Period" means (a) with respect to the non-competition obligations set forth in Section 7.1, the period commencing on the Closing Date and ending on the anniversary of the Closing Date, and (b) with respect to the non-solicitation obligations set forth in Section 7.2, the period commencing on the Closing Date and ending on the third (3rd) anniversary of the Closing Date.
"Seller" has the meaning set forth in the preamble to this Agreement.
"Seller Indemnitees" means Seller, the Seller Principals, and their respective Affiliates, officers, directors, employees, agents, successors, and permitted assigns.
"Seller Principals" has the meaning set forth in the preamble to this Agreement.
"Sponsor" means Kestrel Capital Partners Fund III, LP, a Delaware limited partnership.
"Survival Period" has the meaning set forth in Section 9.1.
"Target Closing Date" means January 16, 2023.
"Target Net Working Capital" means One Million Eight Hundred Thousand Dollars ($1,800,000).
"Tax" or "Taxes" means (a) all federal, state, local, and foreign taxes, charges, fees, levies, imposts, duties, and other assessments, including all income, gross receipts, capital, sales, use, ad valorem, value added, transfer, franchise, profits, withholding, payroll, social security, employment, unemployment, excise, estimated, stamp, occupation, property, and other taxes, customs duties, fees, assessments, and charges of any kind whatsoever, imposed by any Governmental Authority, (b) all interest, penalties, fines, additions to tax, or additional amounts imposed in connection with any item described in clause (a), and (c) any liability for the payment of any amount of the type described in clause (a) or clause (b) as a result of being a member of an affiliated, combined, consolidated, or unitary group, or as a transferee or successor, or by contract, assumption, or operation of law.
"Tax Return" means any return, report, declaration, form, claim for refund, information return, or statement relating to Taxes, including any schedule or attachment thereto, and any amendment thereof.
"Third-Party Claim" has the meaning set forth in Section 9.5(b).
"Tonawanda Facility" means the manufacturing, warehouse, and office facility located at 790 Niagara Falls Boulevard, Tonawanda, New York 14150.
"Transfer Taxes" means all sales, use, transfer, real property transfer, recording, documentary, stamp, registration, and similar taxes, fees, and charges (including any penalties, interest, and additions thereto) incurred in connection with the transactions contemplated by this Agreement.
"Transferred Employees" has the meaning set forth in Section 6.5(a).
"Transition Services Agreement" or "TSA" means the Transition Services Agreement, substantially in the form attached hereto as Exhibit C, to be executed and delivered by Buyer and Seller at the Closing.
"Treasury Regulations" means the regulations promulgated under the Code by the United States Department of the Treasury.
Section 1.2 — Rules of Construction
(a) The headings and captions of the sections and subsections of this Agreement are for convenience of reference only and shall not affect the construction or interpretation of any provision of this Agreement.
(b) Unless the context otherwise requires, words importing the singular include the plural and vice versa, and words importing a gender include all genders.
(c) The word "including" (and words of similar import) means "including, without limitation," and shall not be construed to limit any general statement that it follows to the specific or similar items or matters immediately following it.
(d) References herein to "$" or "Dollars" mean United States dollars.
(e) References herein to any Article, Section, Exhibit, or Schedule are references to the Articles, Sections, Exhibits, and Schedules of and to this Agreement, unless the context otherwise requires.
(f) The words "herein," "hereof," "hereby," "hereunder," and words of similar import refer to this Agreement as a whole (including the Exhibits and Schedules hereto) and not to any particular Article, Section, or other subdivision hereof.
(g) References to any Applicable Law shall be deemed to refer to such Applicable Law as amended from time to time, and to any rules, regulations, or guidance promulgated thereunder.
(h) References to any agreement, instrument, or other document shall be deemed to refer to such agreement, instrument, or other document as amended, supplemented, or otherwise modified from time to time in accordance with the terms thereof.
(i) The Parties have participated jointly in the negotiation and drafting of this Agreement, and in the event of an ambiguity or question of intent arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any provision of this Agreement.
ARTICLE II — PURCHASE AND SALE OF ASSETS; PURCHASE PRICE
Section 2.1 — Acquired Assets
Upon the terms and subject to the conditions of this Agreement, at the Closing, Seller shall sell, convey, assign, transfer, and deliver to Buyer, and Buyer shall purchase and acquire from Seller, all of Seller's right, title, and interest in and to the following assets, properties, and rights, in each case solely to the extent used in or related to the Business (collectively, the "Acquired Assets"):
(a) Tangible Personal Property. All machinery, equipment, tools, furniture, fixtures, vehicles, and other tangible personal property used exclusively or primarily in the Business, including, without limitation, three (3) high-speed dispersion mills, two (2) automated filling lines, fourteen (14) stainless steel mixing tanks (each with a capacity of approximately 5,000 gallons), and all laboratory and quality control equipment, as more particularly described in Schedule 2.1(a) (aggregate net book value of approximately Three Million Two Hundred Thousand Dollars ($3,200,000) as of the date hereof).
(b) Inventory. All inventory of raw materials (including resins, pigments, solvents, and additives), work-in-process, and finished goods related to the Business as of the Closing Date, wherever located, including all inventory held at the Tonawanda Facility and at any third-party warehouse, as more particularly described in Schedule 2.1(b) (estimated at approximately Two Million One Hundred Thousand Dollars ($2,100,000) as of the date hereof).
(c) intellectual Property. All intellectual Property owned by Seller and used in or related to the Business, including, without limitation: (i) the ProShield Trademark (U.S. Trademark Registration No. 2,876,411); (ii) forty-seven (47) proprietary coating formulations, including polymer-modified epoxy coatings, acrylic latex coatings, urethane-modified alkyd coatings, and other specialty formulations; (iii) all trade secrets and know-how related to the formulation, manufacture, testing, and application of ProShield-branded coatings; and (iv) all customer-specific formulation libraries developed in connection with the Business, as more particularly described in Schedule 2.1(c).
(d) Goodwill. All goodwill of the Business and all goodwill associated with the Acquired Assets, the ProShield brand name, and the customer relationships of the Business.
(e) Contracts. All contracts, purchase orders, sales orders, supply agreements, distribution agreements, license agreements, service agreements, and other agreements to which Seller is a party and that relate primarily to the Business, including twenty-three (23) active customer supply agreements, as listed in Schedule 2.1(e) (collectively, the "Assumed Contracts"). For the avoidance of doubt, the top five (5) customers of the Business represent approximately fifty-eight percent (58%) of Product Line revenue for the fiscal year ended December 31, 2021.
(f) Permits and Licenses. To the extent transferable under Applicable Law, all permits, licenses, approvals, authorizations, certifications, registrations, and similar rights held by Seller and used in or necessary for the conduct of the Business, including all environmental permits, manufacturing permits, and product certifications.
(g) Books and Records. books, records, files, data, correspondence, and documents related to the Business, including customer lists, supplier lists, vendor files, formulation records, batch records, quality control records, inspection reports, complaint files, marketing and promotional materials, product literature, price lists, and sales and purchase correspondence; provided, however, that the foregoing shall not include Seller's corporate minute books, stock ledgers, stock transfer records, and Tax records that are not exclusively related to the Business.
(h) Claims and Rights. All claims, causes of action, rights of recovery, rights of set-off, rights of recoupment, and choses in action of any kind relating to the Acquired Assets or the Assumed Liabilities, whether arising by way of counterclaim, warranty, or otherwise.
(i) Prepaid Expenses. All prepaid expenses, deposits, advance payments, and credits related to the Business, including prepaid insurance premiums (to the extent assignable), prepaid rent, prepaid royalties, and other prepaid items.
Section 2.2 — Excluded Assets
Notwithstanding anything to the contrary in Section 2.1 or elsewhere in this Agreement, the following assets of Seller are not being sold, conveyed, assigned, transferred, or delivered to Buyer and are expressly excluded from the Acquired Assets (collectively, the "Excluded Assets"):
(a) All cash, cash equivalents, bank accounts, and short-term investments of Seller.
(b) All accounts receivable of Seller generated prior to the Closing Date, including all trade accounts receivable, notes receivable, and other receivables related to the Business that are outstanding as of the Closing Date.
(c) Seller's corporate charter, certificate of incorporation, qualifications to do business, bylaws, corporate seal, minute books, stock transfer books, stock certificates, and other records relating to the corporate organization of Seller.
(d) All rights of Seller under this Agreement and the Ancillary Agreements.
(e) All assets of Seller that are not exclusively or primarily used in or related to the Business, including, without limitation, all assets related to Seller's other product lines (including Seller's automotive coatings line and architectural coatings line) and all assets used in the general corporate administration of Seller that are not allocable to the Business.
(f) All rights under any insurance policies of Seller and all claims, proceeds, and recoveries thereunder.
(g) All Tax refunds, Tax credits, Tax deposits, and Tax attributes of Seller, including any net operating loss carryforwards and carrybacks.
(h) All Benefit Plans of Seller and all assets held in trust, custody, or otherwise in connection with any Benefit Plan of Seller.
Section 2.3 — Assumed Liabilities
At the Closing, Buyer shall assume and agree to pay, perform, and discharge, when due, the following liabilities and obligations of Seller (collectively, the "Assumed Liabilities"):
(a) All liabilities and obligations arising after the Closing Date under the Assumed Contracts, but only to the extent such liabilities and obligations arise out of or relate to the period from and after the Closing Date and do not arise out of or relate to any breach, default, or violation by Seller occurring prior to or at the Closing.
(b) All trade payables related to the Business that arise after the Closing Date in the ordinary course of business.
(c) All warranty obligations with respect to products of the Business manufactured by Buyer or shipped by Buyer after the Closing Date in accordance with the standard warranty terms of the Business as in effect at the Closing.
(d) All liabilities and obligations assumed by Buyer pursuant to the working capital adjustment provisions of Section 2.6, to the extent such liabilities are reflected as current liabilities in the calculation of Closing Net Working Capital.
Section 2.4 — Excluded Liabilities
All liabilities and obligations of Seller other than the Assumed Liabilities shall remain the sole responsibility of and shall be retained, paid, performed, and discharged solely by Seller (collectively, the "Excluded Liabilities"). Without limiting the generality of the foregoing, the Excluded Liabilities shall include, without limitation:
(a) Any and all liabilities or obligations for Taxes of Seller for any period, whether arising before, on, or after the Closing Date, including any income, franchise, or other Taxes arising as a result of the transactions contemplated by this Agreement (other than Transfer Taxes, which shall be shared as provided in Section 2.9).
(b) Any and all liabilities or obligations arising from any litigation, proceeding, arbitration, claim, demand, or investigation pending against Seller or related to the Business as of the Closing Date, or arising out of or relating to facts, events, or circumstances occurring prior to the Closing Date, whether or not such litigation, proceeding, or claim is disclosed in Schedule 4.10.
(c) Any and all liabilities or obligations under any Benefit Plan of Seller, including any liability or obligation relating to the employment or termination of employment of any employee of Seller arising prior to the Closing Date.
(d) Any and all environmental remediation obligations arising from conditions existing at the Tonawanda Facility (790 Niagara Falls Boulevard, Tonawanda, New York 14150) or at any other location prior to the Closing Date, including any liability under CERCLA, RCRA, or any other Environmental Law,
(e) Any and all liabilities or obligations arising out of or relating to the Excluded Assets.
(f) Any and all liabilities or obligations of Seller for indebtedness for borrowed money, including any bank debt, promissory notes, lines of credit, or other financing obligations of Seller.
(g) Any and all trade payables or other obligations of the Business arising prior to the Closing Date, except to the extent included in the calculation of Closing Net Working Capital and thereby reflected in the Assumed Liabilities.
(h) Any and all intercompany obligations of Seller to its Affiliates, shareholders, or related parties.
Section 2.5 — Purchase Price
The aggregate consideration for the Acquired Assets (the "Purchase Price") shall consist of:
(a) Closing Payment. Fourteen Million Five Hundred Thousand Dollars ($14,500,000) in cash (the "Closing Payment"), payable by wire transfer of immediately available funds to an account or accounts designated by Seller in writing not later than two (2) Business Days prior to the Closing Date, subject to adjustment as set forth in Section 2.6.
(b) Escrow Amount. Two Million Dollars ($2,000,000) in cash (the "Escrow Amount"), to be deposited by Buyer with the Escrow Agent at Closing by wire transfer of immediately available funds in accordance with the terms of the Escrow Agreement.
(c) Earnout Amount. Up to Three Million Five Hundred Thousand Dollars ($3,500,000) in contingent cash consideration (the "Earnout Amount"), payable in accordance with Section 2.7.
(d) Total. For the avoidance of doubt, the Base Purchase Price is Eighteen Million Dollars ($18,000,000), consisting of the Closing Payment (Fourteen Million Five Hundred Thousand Dollars ($14,500,000)), the Escrow Amount (Two Million Dollars ($2,000,000)), and the target Earnout Amount of One Million Five Hundred Thousand Dollars ($1,500,000). The maximum aggregate consideration payable by Buyer to Seller under this Agreement (including the maximum Earnout Amount) is Twenty Million Dollars ($20,000,000).
Section 2.6 — Working Capital Adjustment
(a) Estimated Closing Statement. Not later than three (3) Business Days prior to the Closing Date, Seller shall prepare and deliver to Buyer a statement (the "Estimated Closing Statement") setting forth Seller's good faith estimate of the Net Working Capital as of the close of business on the day immediately preceding the Closing Date (the "Estimated Closing Net Working Capital"), together with reasonable supporting detail and documentation. The Estimated Closing Statement shall be prepared in accordance with GAAP, applied consistently with the methodology and line items set forth in Exhibit G. As of the date of this Agreement, Seller estimates that the Estimated Closing Net Working Capital will be approximately One Million Eight Hundred Fifty Thousand Dollars ($1,850,000).
(b) Closing Adjustment. The Closing Payment shall be adjusted as follows:
(i) If the Estimated Closing Net Working Capital exceeds the Target Net Working Capital , the Closing Payment shall be increased on a dollar-for-dollar basis by the amount of such excess .
(ii) If the Estimated Closing Net Working Capital is less than the Target Net Working Capital , the Closing Payment shall be decreased on a dollar-for-dollar basis by the amount of such shortfall .
(iii) For the avoidance of doubt,
(c) Post-Closing True-Up. Within days after the Closing Date, Buyer shall prepare and deliver to Seller a statement (the "Final Closing Statement") setting forth Buyer's calculation of the actual Net Working Capital as of the close of business on the day immediately preceding the Closing Date (the "Closing Net Working Capital"), together with reasonable supporting detail, work papers, and documentation. The Final Closing Statement shall be prepared in accordance with GAAP, applied consistently with the methodology and line items set forth in Exhibit G.
(i) If the Closing Net Working Capital as set forth in the Final Closing Statement exceeds the Estimated Closing Net Working Capital, Buyer shall pay the amount of such excess to Seller by wire transfer of immediately available funds within five (5) Business Days after the final determination of the Closing Net Working Capital.
(ii) If the Closing Net Working Capital as set forth in the Final Closing Statement is less than the Estimated Closing Net Working Capital, Seller shall pay the amount of such shortfall to Buyer by wire transfer of immediately available funds within five (5) Business Days after the final determination of the Closing Net Working Capital.
(d) Dispute Resolution. If Seller disputes any item or amount in the Final Closing Statement, Seller shall deliver to Buyer a written notice of dispute (the "NWC Dispute Notice") within days after Seller's receipt of the Final Closing Statement, specifying in reasonable detail the items and amounts in dispute and the basis for such dispute, and setting forth Seller's proposed calculation of the Closing Net Working Capital. Any items or amounts not specifically identified in the NWC Dispute Notice shall be deemed accepted by Seller and shall be final and binding on the Parties. Following delivery of the NWC Dispute Notice, the Parties shall negotiate in good faith for a period of days (or such longer period as the Parties may agree in writing) to resolve the disputed items. If the Parties are unable to resolve all disputed items within such day period, the remaining disputed items shall be submitted to the Independent Accountant (Halcyon Chartered Accountants LLP) for final and binding resolution. The Independent Accountant shall act as an expert, not an arbitrator, and shall consider only the specific items and amounts remaining in dispute. The Independent Accountant shall render its determination in writing within thirty (30) days after the submission of the disputed items and shall not assign a value to any disputed item that is greater than the highest value or less than the lowest value claimed by either Party. The fees, costs, and expenses of the Independent Accountant shall be borne by the Party whose position is furthest from the determination of the Independent Accountant, or, if the Independent Accountant's determination falls between the Parties' respective positions, such fees, costs, and expenses shall be allocated between the Parties in inverse proportion to the relative distance of their respective positions from the Independent Accountant's determination. The determination of the Independent Accountant shall be final, conclusive, and binding upon the Parties and shall not be subject to appeal or further review, absent manifest error.
(e) Net Working Capital Definition. As used in this Agreement, "Net Working Capital" means (i) the current assets of the Business (excluding cash, cash equivalents, accounts receivable generated prior to the Closing Date, and Excluded Assets), minus (ii) the current liabilities of the Business (excluding Excluded Liabilities), in each case determined as of the close of business on the day immediately preceding the Closing Date in accordance with GAAP applied consistently with the methodology and illustrative line items set forth in Exhibit G (Sample Net Working Capital Calculation). For purposes of calculating Net Working Capital, current assets shall include, without limitation, inventory, prepaid expenses, and deposits, and current liabilities shall include, without limitation, trade payables, accrued expenses, accrued wages and benefits, and other accrued liabilities, in each case solely to the extent related to the Business.
Section 2.7 — Earnout
(a) Earnout Measurement. The earnout provided for in this Section 2.7 shall be based on the total Gallons Shipped of ProShield-branded coatings by Buyer (or its Affiliates) during the Earnout Period. The Earnout Period shall commence on the and shall end on the date that is twenty-four (24) months thereafter.
(b) Earnout Calculation. The Earnout Amount, if any, shall be calculated as follows:
(i) If total Gallons Shipped during the Earnout Period are less than the Earnout Threshold (2,400,000 gallons), no Earnout Amount shall be payable.
(ii) If total Gallons Shipped during the Earnout Period equal or exceed the Earnout Threshold (2,400,000 gallons) but are less than the Earnout Target (3,000,000 gallons), the Earnout Amount shall equal Two Dollars and Fifty Cents ($2.50) multiplied by the number of gallons by which total Gallons Shipped exceed the Earnout Threshold (with linear interpolation between the Earnout Threshold and the Earnout Target). By way of illustration, if total Gallons Shipped equal 3,000,000 gallons, the Earnout Amount would be: $2.50 × (3,000,000 – 2,400,000) = $2.50 × 600,000 = $1,500,000.
(iii) If total Gallons Shipped during the Earnout Period equal or exceed the Earnout Target (3,000,000 gallons) but are less than or equal to the Earnout Stretch ( gallons), the Earnout Amount shall equal One Million Five Hundred Thousand Dollars ($1,500,000) plus multiplied by the number of gallons by which total Gallons Shipped exceed the Earnout Target. By way of illustration, if total Gallons Shipped equal gallons, the Earnout Amount would be: $1,500,000 + ( × ( – 3,000,000)) = $1,500,000 + ( × ) = $1,500,000 + $ = $3,500,000.
(iv) In no event shall the aggregate Earnout Amount payable under this Section 2.7 exceed Three Million Five Hundred Thousand Dollars ($3,500,000). No additional earnout or other contingent consideration shall be payable for Gallons Shipped in excess of the Earnout Stretch.
(c) Earnout Statement. Within forty-five (45) days after the end of the Earnout Period, Buyer shall prepare and deliver to Seller a written statement (the "Earnout Statement") setting forth in reasonable detail Buyer's calculation of the total Gallons Shipped during the Earnout Period and the resulting Earnout Amount, if any, together with reasonable supporting documentation. Buyer shall provide Seller and its accountants with reasonable access to the books and records of Buyer used in the preparation of the Earnout Statement for the purpose of verifying the accuracy thereof.
(d) Earnout Payment. Any Earnout Amount determined to be payable in accordance with this Section 2.7 shall be paid by Buyer to Seller by wire transfer of immediately available funds within sixty (60) days after the end of the Earnout Period (or, in the event of a dispute, within ten (10) Business Days after the final resolution of such dispute).
(e) Dispute Resolution. If Seller disputes the Earnout Statement (in whole or in part), Seller shall deliver to Buyer a written notice of dispute (the "Earnout Dispute Notice") within thirty (30) days after Seller's receipt of the Earnout Statement, specifying in reasonable detail the items and amounts in dispute and the basis for such dispute. The Parties shall negotiate in good faith for a period of fifteen (15) days (or such longer period as the Parties may agree in writing) to resolve the disputed items. If the Parties are unable to resolve all disputed items within such period, the remaining disputed items shall be submitted to the Independent Accountant for final and binding resolution in accordance with the procedures set forth in Section 2.6(d), mutatis mutandis.
(f) Buyer's Operational Covenants During Earnout Period. During the Earnout Period, Buyer shall operate the Business in good faith and in the ordinary course consistent with past practices and prudent business judgment, and shall not take any action with the primary purpose of reducing the Gallons Shipped in order to avoid or reduce the Earnout Amount.
Buyer shall maintain separate and accurate books and records sufficient to calculate the Gallons Shipped during the Earnout Period. Buyer shall provide Seller with written reports of Gallons Shipped within days after the end of each during the Earnout Period, in reasonable detail and in a format mutually agreed upon by the Parties.
(g) No Right to Offset. Earnout Amount, if any, shall not be subject to offset,
Section 2.8 — Allocation of Purchase Price
The Purchase Price (including the Escrow Amount and the Earnout Amount, to the extent paid) shall be allocated among the Acquired Assets in accordance with Section 1060 of the Code and the Treasury Regulations promulgated thereunder, as set forth in the Allocation Schedule attached hereto as Exhibit F. The Parties shall cooperate in good faith to finalize the Allocation Schedule within sixty (60) days after the Closing Date. If an Earnout Amount is paid, the Parties shall adjust the Allocation Schedule to reflect such payment in a manner consistent with Section 1060 of the Code. Each Party shall file all Tax Returns (including IRS Form 8594 and any required amendments thereto) consistent with the agreed-upon Allocation Schedule and shall not take any position on any Tax Return, in any Tax proceeding, or otherwise that is inconsistent with such allocation unless required to do so by a final determination (within the meaning of Section 1313(a) of the Code) of the relevant Governmental Authority.
Section 2.9 — Transfer Taxes
All Transfer Taxes incurred in connection with the sale, conveyance, assignment, transfer, and delivery of the Acquired Assets to Buyer pursuant to this Agreement shall be borne equally (fifty percent (50%) by Buyer and fifty percent (50%) by Seller). The Parties shall cooperate in the timely filing of all Tax Returns and other documentation required in connection with such Transfer Taxes, including any exemption certificates or similar instruments.
Section 2.10 — Withholding
Buyer shall be entitled to deduct and withhold from any payments to be made to Seller pursuant to this Agreement any amounts that Buyer is required to deduct and withhold under the Code or any provision of state, local, or foreign Tax law. To the extent that any such amounts are so deducted and withheld and properly remitted to the applicable Governmental Authority, such amounts shall be treated for all purposes of this Agreement as having been paid to Seller. Seller shall deliver at the Closing a certificate of non-foreign status under Section 1445 of the Code in accordance with Section 3.2(a)(viii).
ARTICLE III — CLOSING
Section 3.1 — Closing Date and Location
The closing of the transactions contemplated by this Agreement (the "Closing") shall take place on or before January 16, 2023 (the "Target Closing Date"), or on such other date as Buyer and Seller may mutually agree in writing (the date on which the Closing actually occurs, the "Closing Date"), subject to the satisfaction or waiver of the conditions set forth in Article VIII. The Closing shall take place remotely via the electronic exchange of documents and signatures, unless the Parties otherwise agree in writing to a physical location for the Closing. At the Closing, all transactions, deliveries, and payments to be made at the Closing shall be deemed to occur simultaneously, and no such transaction, delivery, or payment shall be deemed to have been consummated until all such transactions, deliveries, and payments shall have been consummated.
Section 3.2 — Closing Deliverables
(a) Seller's Deliverables at Closing. At the Closing, Seller shall deliver (or cause to be delivered) to Buyer the following documents, instruments, and other deliverables:
(i) Bill of Sale. The Bill of Sale, substantially in the form attached hereto as Exhibit A, duly executed by Seller, conveying to Buyer all of Seller's right, title, and interest in and to the Acquired Assets, free and clear of all Liens other than Permitted Liens.
(ii) Assignment and Assumption Agreement. The Assignment and Assumption Agreement, substantially in the form attached hereto as Exhibit D, duly executed by Seller, assigning to Buyer all of Seller's right, title, and interest in and to the Assumed Contracts and assigning to Buyer the Assumed Liabilities.
(iii) IP Assignment Agreement. The IP Assignment Agreement, substantially in the form attached hereto as Exhibit E, duly executed by Seller, assigning to Buyer all of Seller's right, title, and interest in and to all intellectual Property of the Business, including the ProShield Trademark (U.S. Trademark Registration No. 2,876,411), forty-seven (47) proprietary coating formulations, all trade secrets and know-how, and all customer-specific formulation libraries.
(iv) Escrow Agreement. The Escrow Agreement, substantially in the form attached hereto as Exhibit B, duly executed by Seller and the Escrow Agent (Pinnacle Trust Company).
(v) Transition Services Agreement. The Transition Services Agreement, substantially in the form attached hereto as Exhibit C, duly executed by Seller.