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")
FREDERICK G. VOSS, an individual ("FGV Principal")
and
ELENA M. VOSS, an individual ("EMV Principal" and together with FGV Principal, the "Seller Principals")
Dated as of November 28, 2022
The Seller Principals are parties to this Agreement solely for purposes of Article IX (Indemnification) and Article VII (Restrictive Covenants).
TABLE OF CONTENTS
Right-click to update Table of Contents
RECITALS
WHEREAS, Voss Chemical Industries, Inc., a corporation duly organized and existing under the laws of the State of New York ("Seller"), is engaged in the business of specialty and performance coatings, including the ProShield Industrial Coatings product line (the "Business"), involving the development, manufacture, marketing, sale, and distribution of specialty coating products;
WHEREAS, Seller operates the Business from its facility located at 790 Niagara Falls Boulevard, Tonawanda, New York 14150 (the "Tonawanda Facility");
WHEREAS, Crestline Packaging Solutions LLC, a limited liability company duly organized and existing under the laws of the State of Delaware ("Buyer"), is engaged in the specialty chemicals, packaging coatings, and industrial surface treatments industry, with its principal office located at 4100 Rockside Road, Suite 300, Independence, Ohio 44131;
WHEREAS, Buyer desires to purchase from Seller, and Seller desires to sell to Buyer, substantially all of the assets used in or related to the ProShield Industrial Coatings product line of Seller, upon the terms and subject to the conditions set forth in this Agreement;
WHEREAS, Frederick G. Voss, an individual residing in the State of New York, is the holder of approximately sixty-two percent (62%) of the outstanding shares of capital stock of Seller and serves as President of Seller, and Elena M. Voss, an individual residing in the State of New York, is the holder of approximately thirty-eight percent (38%) of the outstanding shares of capital stock of Seller and serves as Vice President of Operations of Seller (Frederick G. Voss and Elena M. Voss, collectively, the "Seller Principals"); and
WHEREAS, each of the Seller Principals is entering into this Agreement solely for purposes of the indemnification obligations set forth in Article IX and the restrictive covenants set forth in Article VII hereof.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I — DEFINITIONS
Section 1.1 — Definitions.
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" (including, with correlative meanings, the terms "controlled by" and "under common control with") 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" or "APA" means this Asset Purchase Agreement, including all Schedules and Exhibits hereto, as the same may be amended, supplemented, or otherwise modified from time to time in accordance with the terms hereof.
"Allocation Schedule" has the meaning set forth in Section 3.4.
"Assumed Contracts" means those Contracts listed on Schedule 2.1(d) that are being assigned to and assumed by Buyer pursuant to this Agreement and the Assignment and Assumption Agreement.
"Assumed Liabilities" has the meaning set forth in Section 2.4.
"Assignment and Assumption Agreement" means the Assignment and Assumption Agreement substantially in the form attached hereto as Exhibit D.
"Bill of Sale" means the Bill of Sale substantially in the form attached hereto as Exhibit A.
"Ashgrove Equity Partners" means Kestrel Capital Partners Fund III, LP, a Delaware limited partnership and the sole member of Buyer.
"Business" means the ProShield Industrial Coatings product line of Seller, including the development, manufacture, marketing, sale, and distribution of ProShield-branded coatings products, and all activities ancillary thereto, as conducted by Seller as of the date of this Agreement and during the periods covered by the Financial Statements.
"Business Day" means any day other than a Saturday, a Sunday, or a day on which commercial banks in New York, New York are authorized or required by Law to be closed for business.
"Business Employees" has the meaning set forth in Section 5.12(a).
"Buyer" means Crestline Packaging Solutions LLC, a Delaware limited liability company.
"Buyer Indemnified Parties" has the meaning set forth in Section 9.2.
"Buyer's Knowledge" or "to the Knowledge of Buyer" means the actual knowledge, as of the date of this Agreement (or, with respect to a certificate delivered at the Closing, as of the Closing Date), of Thomas R. Ellison, Sandra K. Nair, and Derek Amato.
"Closing" has the meaning set forth in Section 4.1.
"Closing Date" has the meaning set forth in Section 4.1.
"Closing Payment" means the amount of Fourteen Million Five Hundred Thousand Dollars ($14,500,000).
"Code" means the Internal Revenue Code of 1986, as amended.
"Contracts" means all contracts, agreements, purchase orders, supply agreements, leases, subleases, licenses, sublicenses, commitments, and other legally binding arrangements, whether written or oral, relating to the Business.
"Earnout Amount" has the meaning set forth in Section 3.3.
"Earnout Period" means the twenty-four (24)-month period commencing on January 17, 2023 and ending on January 16, 2025.
"Earnout Statement" has the meaning set forth in Section 3.3(c).
"Encumbrance" or "Lien" means any lien, pledge, mortgage, deed of trust, security interest, charge, claim, easement, encroachment, right of first refusal, option, restriction on transfer, defect of title, or other encumbrance of any kind or nature.
"Environmental Claim" means any written claim, demand, action, suit, proceeding, order, directive, or notice by any Governmental Authority or other Person asserting liability or potential liability (including liability for investigatory costs, cleanup costs, governmental response costs, natural resource damages, property damage, personal injury, or penalties) arising out of, based on, or related to (a) the presence, release, or threatened release of any Hazardous Material at, on, in, under, from, or about any property owned, leased, operated, or formerly owned, leased, or operated by Seller in connection with the Business, or (b) any violation of or non-compliance with any Environmental Law.
"Environmental Laws" means all federal, state, and local Laws relating to pollution or protection of the environment, human health, or natural resources, including the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA"), as amended by the Superfund Amendments and Reauthorization Act of 1986, the Resource Conservation and Recovery Act of 1976 ("RCRA"), the Clean Water Act, the Clean Air Act, the Toxic Substances Control Act, the Emergency Planning and Community Right-to-Know Act, and their state and local counterparts and analogues, each as amended from time to time.
"Escrow Agent" means Pinnacle Trust Company, with offices at 40 Wall Street, 16th Floor, New York, New York 10005.
"Escrow Agreement" means the Escrow Agreement substantially in the form attached hereto as Exhibit B, by and among Buyer, Seller, and the Escrow Agent.
"Escrow Amount" means the amount of Two Million Dollars ($2,000,000).
"Estimated NWC" has the meaning set forth in Section 3.2(a).
"Excluded Assets" has the meaning set forth in Section 2.2.
"Excluded Liabilities" has the meaning set forth in Section 2.5.
"Final NWC Statement" has the meaning set forth in Section 3.2(b).
"Financial Statements" means the unaudited financial statements of the Business described in Section 5.4.
"FIRPTA" means the Foreign Investment in Real Property Tax Act of 1980, as amended.
"Fundamental Representations" means those representations and warranties of Seller set forth in Section 5.1 (Organization and Good Standing), Section 5.2 (Authority; Binding Effect), Section 5.5 (Title to Acquired Assets), Section 5.18 (Tax Matters), and Section 5.20 (Brokers).
"GAAP" means United States generally accepted accounting principles as in effect from time to time, applied on a consistent basis.
"Gallons Shipped" means the total number of gallons of ProShield-branded coatings products shipped by Buyer or any of its Affiliates to third-party customers during the Earnout Period, measured by standard industry measurement conventions consistent with Seller's historical practices, and excluding inter-company shipments, returns, and samples.
"Governmental Authority" means any federal, state, provincial, local, municipal, or foreign government or any governmental, regulatory, or administrative authority, agency, bureau, board, commission, court, tribunal, judicial body, instrumentality, or political subdivision thereof, or any entity exercising executive, legislative, judicial, quasi-judicial, regulatory, taxing, or administrative functions of or pertaining to government, including any self-regulatory organization.
"Hazardous Material" means any substance, material, or waste that is regulated, classified, or otherwise characterized under any Environmental Law as "hazardous," "toxic," "pollutant," "contaminant," "radioactive," or words of similar meaning or effect, including petroleum, petroleum by-products, asbestos or asbestos-containing materials, polychlorinated biphenyls, per- and polyfluoroalkyl substances (PFAS), and radon.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder.
"Independent Accountant" means Halcyon Chartered Accountants LLP, or if such firm is unable or unwilling to serve, such other nationally recognized independent accounting firm as may be mutually agreed upon by Buyer and Seller.
"Indemnification Cap" means Four Million Five Hundred Thousand Dollars ($4,500,000), representing twenty-five percent (25%) of the Purchase Price.
"intellectual Property" means all intellectual property and proprietary rights of any kind, including: (a) trademarks, service marks, trade names, brand names, logos, trade dress, and other source identifiers, together with all goodwill associated therewith, and all registrations, applications, renewals, and extensions thereof (including the ProShield trademark, U.S. Registration No. 2,876,411); (b) patents and patent applications; (c) copyrights and copyrightable works, and all registrations, applications, renewals, and extensions thereof; (d) trade secrets, know-how, proprietary processes, formulations, techniques, methods, compositions, algorithms, data, research, and development information; (e) domain names and uniform resource locators; and (f) all rights to sue or recover for past, present, or future infringement, misappropriation, dilution, or other violation of any of the foregoing.
"IP Assignment" means the intellectual Property Assignment Agreement substantially in the form attached hereto as Exhibit E.
"Law" means any statute, law, ordinance, regulation, rule, code, treaty, executive order, injunction, judgment, decree, or other requirement or rule of law enacted, adopted, promulgated, or applied by any Governmental Authority.
"Losses" means any and all damages, losses, liabilities, claims, demands, actions, causes of action, costs, and expenses (including reasonable attorneys' fees and expenses, court costs, costs of investigation, and amounts paid in settlement), judgments, fines, penalties, interest, and deficiencies.
"Material Adverse Effect" means any change, effect, event, occurrence, state of facts, condition, or development that, individually or in the aggregate, has had or would reasonably be expected to have a materially adverse effect on (a) the business, assets, liabilities, financial condition, or results of operations 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 considered in determining whether a Material Adverse Effect has occurred: (i) changes in general economic, business, financial, or market conditions; (ii) changes affecting the specialty coatings industry generally and not disproportionately affecting the Business; (iii) changes in applicable Law or GAAP; (iv) natural disasters, acts of God, pandemics (including COVID-19 and any variants thereof), epidemics, or public health emergencies; (v) acts of war, terrorism, sabotage, military action, or national emergency; (vi) any failure of the Business to meet internal projections or forecasts (provided that the underlying causes of any such failure may be considered); and (vii) effects arising from the announcement, pendency, or consummation of the transactions contemplated by this Agreement, including the impact thereof on relationships with employees, customers, suppliers, or other business partners.
"Material Contract" means any Contract to which Seller is a party or by which any Acquired Asset is bound that (a) involves aggregate annual payments or receipts in excess of $100,000, (b) has a remaining term in excess of twelve (12) months and is not terminable without penalty on sixty (60) days' or less notice, (c) contains any covenant restricting the ability of Seller to compete in any line of business or geographic area, (d) is with a Related Party of Seller, (e) involves the license of intellectual Property material to the Business (other than standard commercial off-the-shelf software licenses), or (f) is otherwise material to the operation of the Business.
"Maximum Earnout Amount" means Three Million Five Hundred Thousand Dollars ($3,500,000).
"Net Working Capital" means, as of any date of determination, the current assets of the Business minus the current liabilities of the Business, calculated in accordance with GAAP applied on a basis consistent with Seller's historical practices and the specific accounting principles, methodologies, and procedures set forth on Schedule 3.2.
"Ordinary Course of Business" means the ordinary and usual course of normal day-to-day operations of the Business, consistent with past custom and practice (including with respect to quantity and frequency).
"Outside Date" means March 31, 2023.
"Permits" means all permits, licenses, certifications, approvals, registrations, consents, authorizations, franchises, variances, exemptions, and orders issued or granted by any Governmental Authority necessary for the lawful conduct of the Business.
"Permitted Encumbrances" means (a) statutory liens for current Taxes not yet due and payable or being contested in good faith by appropriate proceedings, (b) mechanics', carriers', workers', repairers', materialmen's, warehousemen's, and similar statutory liens arising or incurred in the Ordinary Course of Business for amounts not yet due and payable, (c) zoning, building, and other land use Laws imposed by any Governmental Authority, (d) liens arising under workers' compensation, unemployment insurance, social security, retirement, and similar legislation, and (e) such other Encumbrances as are set forth on Schedule 5.5.
"Person" means any individual, corporation, limited liability company, partnership, joint venture, association, trust, unincorporated organization, Governmental Authority, or other entity.
"ProShield Formulations" means the forty-seven (47) proprietary coating formulations identified on Schedule 5.10(a), including all polymer-modified epoxy and acrylic latex coating formulations, customer-specific variations thereof, and all related technical data, specifications, and production methodologies.
"Purchase Price" means Eighteen Million Dollars ($18,000,000).
"R&W Insurance Policy" means the buyer-side representations and warranties insurance policy issued by Coventry Mutual Insurance Co. (Policy No. CMI-RW-2023-0042), as bound on November 22, 2022 and issued effective as of the Closing Date.
"Related Party" means, with respect to Seller, any Affiliate of Seller, any Seller Principal, any member of the immediate family of any Seller Principal, and any entity in which any such Person has a material economic interest or serves as an officer, director, or manager.
"Registered Agent" means (a) with respect to Buyer, National Registered Agent Services Inc., 1209 Orange Street, Wilmington, Delaware 19801, and (b) with respect to Seller, Voss Chemical Industries, Inc. c/o Frederick Voss, 790 Niagara Falls Boulevard, Tonawanda, New York 14150.
"Seller" means Voss Chemical Industries, Inc., a New York corporation.
"Seller Indemnified Parties" has the meaning set forth in Section 9.3.
"Seller Principals" means Frederick G. Voss and Elena M. Voss.
"Seller's Knowledge" or "to the Knowledge of Seller" means the actual knowledge, as of the date of this Agreement (or, with respect to a certificate delivered at the Closing, as of the Closing Date), of Frederick G. Voss and Elena M. Voss, in each case after reasonable inquiry of the direct reports of such individuals and review of the relevant files and records of Seller in such individual's possession or control.
"Stretch Threshold" means Three Million Eight Hundred Thousand (3,800,000) Gallons Shipped.
"Target Closing Date" means January 16, 2023.
"Target Net Working Capital" means One Million Eight Hundred Thousand Dollars ($1,800,000).
"Target Volume" means Three Million (3,000,000) Gallons Shipped.
"Tax" or "Taxes" means any and all federal, state, local, or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental, customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund, estimate, or information return or statement relating to Taxes, including any schedule or attachment thereto, and any amendment thereof, filed or required to be filed with a Governmental Authority.
"Threshold" means Two Million Four Hundred Thousand (2,400,000) Gallons Shipped.
"Tonawanda Facility" means Seller's facility located at 790 Niagara Falls Boulevard, Tonawanda, New York 14150.
"Transaction Documents" means this Agreement, the Bill of Sale, the Assignment and Assumption Agreement, the IP Assignment, the Escrow Agreement, the Transition Services Agreement, and each other agreement, certificate, instrument, or document executed and delivered pursuant to or in connection with this Agreement.
"Transfer Taxes" has the meaning set forth in Section 7.9(c).
"Transferred Employees" has the meaning set forth in Section 7.8(b).
"Transition Services Agreement" or "TSA" means the Transition Services Agreement substantially in the form attached hereto as Exhibit C.
"WARN Act" means the Worker Adjustment and Retraining Notification Act of 1988, as amended, and any similar state or local Law.
Section 1.2 — Interpretation.
Unless the context otherwise requires, the following rules of interpretation shall apply to this Agreement:
(a) The words "hereof," "herein," "hereunder," and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and not to any particular provision of this Agreement.
(b) The terms defined in the singular shall have a comparable meaning when used in the plural, and vice versa, and words importing one gender shall include the other genders.
(c) The terms "Dollars" and "$" mean United States Dollars.
(d) References to "Articles," "Sections," "Schedules," and "Exhibits" shall refer to the Articles, Sections, Schedules, and Exhibits of or to this Agreement, unless otherwise specified.
(e) The word "including" (and with correlative meaning "include" and "includes") means including without limitation.
(f) The table of contents and headings of Articles, Sections, and other subdivisions of this Agreement are for convenience of reference only, shall not be considered a part of this Agreement, and shall not be employed in the interpretation of this Agreement.
(g) Any reference to any statute, Law, or regulation shall include all amendments thereto and all rules and regulations promulgated thereunder and any successor statute, Law, or regulation, unless the context otherwise requires.
(h) Any reference to a Person shall include such Person's successors and permitted assigns.
(i) Each party hereto and its counsel have reviewed and participated in the drafting of this Agreement, and accordingly, the rule of construction that ambiguities are to be resolved against the drafting party shall not be applied in interpreting this Agreement.
(j) All Schedules and Exhibits referred to herein are hereby incorporated in and made a part of this Agreement as if set forth in full herein.
ARTICLE II — PURCHASE AND SALE OF ASSETS
Section 2.1 — Acquired Assets.
Upon the terms and subject to the conditions set forth in this Agreement, at the Closing, Seller agrees to sell, transfer, assign, convey, and deliver to Buyer, and Buyer agrees to purchase and accept from Seller, free and clear of all Encumbrances (other than Permitted Encumbrances), all of Seller's right, title, and interest in and to substantially all of the assets used in or related to the Business (collectively, the "Acquired Assets"), including all right, title, and interest of Seller in and to the following:
(a) Tangible Personal Property and Equipment. All tangible personal property and equipment used in or held for use in the Business, including 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, all as more particularly described on Schedule 2.1(a), with an aggregate book value of approximately Three Million Two Hundred Thousand Dollars ($3,200,000);
(b) Inventory. All inventory of the Business, including raw materials, work-in-process, and finished goods, wherever located, as more particularly described on Schedule 2.1(b), with an estimated aggregate value of approximately Two Million One Hundred Thousand Dollars ($2,100,000) as of the Target Closing Date;
(c) intellectual Property. All intellectual Property of the Business, including: (i) the "ProShield" trademark (U.S. Registration No. 2,876,411), together with all associated goodwill; (ii) the forty-seven (47) proprietary coating formulations constituting the ProShield Formulations; (iii) all trade secrets relating to polymer-modified epoxy and acrylic latex coatings; (iv) all customer-specific formulation libraries; (v) all domain names related to the ProShield brand; and (vi) all other intellectual Property rights related to the Business, all as more particularly described on Schedule 2.1(c);
(d) Contracts. All Contracts related to the Business, including the twenty-three (23) active supply agreements listed on Schedule 2.1(d) (the "Assumed Contracts"), to the extent assignable by Seller (or, where consent to assignment is required, subject to the receipt of such consent);
(e) Permits. All Permits related to the Business, to the extent transferable by Seller under applicable Law;
(f) Books and Records. All books, records, files, data, documents, correspondence, and other documentation exclusively relating to the Business, including customer files, sales records, production records, quality control records, and technical data (but excluding Seller's corporate records, minute books, stock ledgers, Tax Returns, and other records described in Section 2.2(c));
(g) Customer and Supplier Information. All customer and supplier lists, customer data, customer purchase histories, supplier data, pricing information, and marketing materials related to the Business;
(h) Claims and Causes of Action. All claims, causes of action, choses in action, rights of recovery, rights of set-off, warranties, guarantees, and similar rights of Seller to the extent relating to the Acquired Assets or the Assumed Liabilities, whether arising by way of counterclaim or otherwise; and
(i) Goodwill. All goodwill associated with the Business, including the going-concern value thereof.
Section 2.2 — Excluded Assets.
Notwithstanding anything to the contrary in this Agreement, the following assets of Seller shall be excluded from the Acquired Assets and shall be retained by Seller (collectively, the "Excluded Assets"):
(a) All cash, cash equivalents, bank accounts, and deposits of Seller;
(b) All accounts receivable and notes receivable of Seller arising out of or generated by the Business on or prior to the Closing Date;
(c) Seller's corporate records, organizational documents (including certificates of incorporation, bylaws, and all amendments thereto), minute books, stock ledgers, Tax Returns, and such other books and records that Seller is required by Law to retain;
(d) Seller's rights under this Agreement, the Escrow Agreement, and the other Transaction Documents;
(e) All assets of Seller that are not exclusively used in the Business, including all assets used in or related to Seller's automotive coatings and architectural coatings product lines;
(f) All insurance policies of Seller and all rights of Seller thereunder, including all claims, refunds, credits, and rights to proceeds thereof; and
(g) All employee benefit plans and arrangements of Seller, including all assets held in trust or otherwise set aside or reserved for the benefit of employees or former employees of Seller under any such plan or arrangement.
Section 2.3 — No Transfer of Real Property.
No real property is being transferred, conveyed, or assigned by Seller to Buyer pursuant to this Agreement. The Tonawanda Facility is leased by Seller from Niagara Industrial Realty LLC. Buyer is negotiating a new direct lease with Niagara Industrial Realty LLC for the continued occupancy and use of the Tonawanda Facility, consisting of approximately forty-two thousand (42,000) square feet at a base rental rate of Fourteen Dollars and Fifty Cents ($14.50) per square foot per annum (an annual base rent of approximately Six Hundred Nine Thousand Dollars ($609,000)). As a condition to the obligations of Buyer to consummate the Closing, Buyer shall have received landlord consent from Niagara Industrial Realty LLC to enter into such new direct lease on terms and conditions reasonably satisfactory to Buyer.
Section 2.4 — Assumed Liabilities.
At the Closing, Buyer shall assume and agree to discharge only the following liabilities and obligations of Seller, and no others (collectively, the "Assumed Liabilities"):
(a) All trade payables arising under the Assumed Contracts to the extent arising from and after the Closing Date in connection with the operation of the Business by Buyer;
(b) All warranty obligations relating to ProShield-branded products shipped by Buyer from and after the Closing Date; and
(c) All obligations and liabilities arising under the Assumed Contracts from and after the Closing Date, but only to the extent such obligations and liabilities arise from events, acts, or omissions occurring after the Closing Date.
Section 2.5 — Excluded Liabilities.
Buyer shall not assume, and shall have no liability or obligation with respect to, any liabilities or obligations of Seller of any kind or nature whatsoever, whether known or unknown, accrued, absolute, contingent, or otherwise, other than the Assumed Liabilities (collectively, the "Excluded Liabilities"). Without limiting the generality of the foregoing, the Excluded Liabilities shall include all of the following:
(a) All liabilities of Seller for Taxes arising from or relating to the operation of the Business or the ownership of the Acquired Assets for any Tax period (or portion thereof) ending on or before the Closing Date;
(b) All liabilities of Seller arising out of, relating to, or in connection with any litigation, arbitration, claim, action, suit, or proceeding pending as of the Closing Date, including those matters listed on Schedule 5.8;
(c) All liabilities of Seller under, relating to, or arising out of any employee benefit plan, program, policy, arrangement, or agreement maintained, sponsored, or contributed to by Seller for the benefit of any current or former employee or service provider of Seller;
(d) All environmental remediation obligations, cleanup costs, and other environmental liabilities arising from or relating to conditions existing on or before the Closing Date, including conditions at, on, in, under, or migrating from the Tonawanda Facility (subject to Seller's indemnification obligations under Article IX);
(e) All liabilities of Seller relating to or arising out of the Excluded Assets; and
(f) All accounts payable of the Business arising or accruing prior to the Closing Date.
ARTICLE III — PURCHASE PRICE AND PAYMENT
Section 3.1 — Purchase Price.
The aggregate purchase price for the Acquired Assets shall be Eighteen Million Dollars ($18,000,000) (the "Purchase Price"), subject to adjustment as provided in Section 3.2, payable as follows:
(a) Closing Payment. At the Closing, Buyer shall pay to Seller the Closing Payment in the amount of Fourteen Million Five Hundred Thousand Dollars ($14,500,000) in cash by wire transfer of immediately available funds to the account or accounts designated by Seller in writing not less than two (2) Business Days prior to the Closing Date;
(b) Escrow Deposit. At the Closing, Buyer shall deposit the Escrow Amount in the amount of Two Million Dollars ($2,000,000) with the Escrow Agent into the escrow account established pursuant to the Escrow Agreement (reference no. PT-2023-00418), to be held, invested, and released in accordance with the terms and conditions of the Escrow Agreement; and
(c) Earnout Amount. Buyer shall pay to Seller the Earnout Amount, if any, as and when due in accordance with Section 3.3.
Section 3.2 — Working Capital Adjustment.
(a) Estimated Net Working Capital. No later than three (3) Business Days prior to the Closing Date, Seller shall deliver to Buyer a certificate, executed by the chief financial officer of Seller (or, in the absence of a chief financial officer, by Frederick G. Voss as President), setting forth Seller's good faith estimate of the Net Working Capital as of the Closing Date (the "Estimated NWC"), together with reasonable supporting documentation. The Estimated NWC as of the date hereof is One Million Eight Hundred Fifty Thousand Dollars ($1,850,000). To the extent that the Estimated NWC differs from the Target Net Working Capital, the Closing Payment shall be adjusted dollar-for-dollar upward (if the Estimated NWC exceeds the Target Net Working Capital) or downward (if the Estimated NWC is less than the Target Net Working Capital).
(b) Post-Closing True-Up. Within ninety (90) days after the Closing Date (that is, on or before April 20, 2023), Buyer shall prepare and deliver to Seller a statement (the "Final NWC Statement") setting forth Buyer's calculation of the final Net Working Capital as of the Closing Date, calculated in accordance with GAAP applied on a basis consistent with Seller's past practices and the specific accounting principles, methodologies, and procedures set forth on Schedule 3.2. The Final NWC Statement shall be accompanied by reasonable supporting workpapers and documentation.
(c) Dispute Resolution. Seller shall have thirty (30) days following its receipt of the Final NWC Statement (the "Review Period") within which to review the Final NWC Statement and deliver to Buyer a written notice of objection (a "NWC Objection Notice"), setting forth in reasonable detail each item in dispute and the basis for such dispute. If Seller does not deliver a NWC Objection Notice within the Review Period, the Final NWC Statement as delivered by Buyer shall be deemed final, binding, and conclusive upon the parties. If Seller timely delivers a NWC Objection Notice, Buyer and Seller shall negotiate in good faith for a period of fifteen (15) days following Buyer's receipt of the NWC Objection Notice to resolve the disputed items. If Buyer and Seller are unable to resolve all disputed items within such fifteen (15)-day period, the remaining disputed items shall be submitted to the Independent Accountant (Halcyon Chartered Accountants LLP, or such other firm as mutually agreed by the parties) for final resolution. The Independent Accountant shall act as an expert and not as an arbitrator and shall determine only those items remaining in dispute. The Independent Accountant's determination with respect to each disputed item shall not be more favorable to Buyer than the position taken by Buyer in the Final NWC Statement, nor more favorable to Seller than the position taken by Seller in the NWC Objection Notice. The determination of the Independent Accountant shall be final and binding upon the parties, absent manifest error or fraud. The costs, fees, and expenses of the Independent Accountant shall be borne by Buyer and Seller in inverse proportion to the amounts by which their respective positions differed from the final determination of the Independent Accountant.
(d) Adjustment. The post-Closing adjustment shall be calculated on a dollar-for-dollar basis, without any collar, de minimis threshold, or other limitation. If the final Net Working Capital as finally determined pursuant to this Section 3.2 (the "Final NWC") exceeds the Target Net Working Capital, Buyer shall pay to Seller an amount equal to such excess. If the Final NWC is less than the Target Net Working Capital, Seller shall pay to Buyer an amount equal to such shortfall. Any payment required under this Section 3.2(d) shall be made by wire transfer of immediately available funds within five (5) Business Days following the final determination of the Final NWC.
Section 3.3 — Earnout.
(a) Earnout Measurement. The Earnout Amount, if any, shall be calculated based on the total Gallons Shipped during the Earnout Period, in accordance with this Section 3.3.
(b) Earnout Calculation. The Earnout Amount shall be determined as follows:
(i) If total Gallons Shipped during the Earnout Period is less than the Threshold (2,400,000 gallons), no Earnout Amount shall be payable to Seller;
(ii) If total Gallons Shipped during the Earnout Period equals or exceeds the Threshold (2,400,000 gallons) but is less than the Target Volume (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 exceeds the Threshold (i.e., $2.50 × (Gallons Shipped – 2,400,000)), resulting in an Earnout Amount ranging from zero up to a maximum of One Million Five Hundred Thousand Dollars ($1,500,000) at the Target Volume;
(iii) If total Gallons Shipped during the Earnout Period equals or exceeds the Target Volume (3,000,000 gallons) but is less than the Stretch Threshold (3,800,000 gallons), the Earnout Amount shall equal One Million Five Hundred Thousand Dollars ($1,500,000) plus Two Dollars and Fifty Cents ($2.50) multiplied by the number of gallons by which total Gallons Shipped exceeds the Target Volume (i.e., $1,500,000 + $2.50 × (Gallons Shipped – 3,000,000)), resulting in an Earnout Amount ranging from One Million Five Hundred Thousand Dollars ($1,500,000) up to a maximum of Three Million Five Hundred Thousand Dollars ($3,500,000) at the Stretch Threshold; and
(iv) If total Gallons Shipped during the Earnout Period equals or exceeds the Stretch Threshold (3,800,000 gallons), the Earnout Amount shall be Three Million Five Hundred Thousand Dollars ($3,500,000) (the "Maximum Earnout Amount"). For the avoidance of doubt, in no event shall the aggregate Earnout Amount payable under this Section 3.3 exceed the Maximum Earnout Amount.
(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, together with reasonable supporting documentation.
(d) Earnout Dispute Resolution. Seller shall have thirty (30) days following its receipt of the Earnout Statement to review the Earnout Statement and deliver to Buyer a written notice of objection (an "Earnout Objection Notice"), setting forth in reasonable detail each item in dispute and the basis therefor. If Seller does not deliver an Earnout Objection Notice within such thirty (30)-day period, the Earnout Statement as delivered by Buyer shall be deemed final, binding, and conclusive upon the parties. If Seller timely delivers an Earnout Objection Notice, the parties shall negotiate in good faith for fifteen (15) days to resolve the disputed items. If the parties are unable to resolve all disputed items within such fifteen (15)-day period, the remaining disputed items shall be submitted to the Independent Accountant for final resolution. The Independent Accountant shall be Halcyon Chartered Accountants LLP (or such other nationally recognized independent accounting firm as may be mutually agreed by the parties if Halcyon Chartered Accountants LLP is unable or unwilling to serve). The Independent Accountant's determination shall be final and binding upon the parties, absent manifest error or fraud. The costs, fees, and expenses of the Independent Accountant shall be borne by Buyer and Seller in proportion to the extent to which their respective positions are not upheld by the Independent Accountant.
(e) Payment. Any Earnout Amount determined to be payable pursuant to this Section 3.3 shall be paid by Buyer to Seller within sixty (60) days after the end of the Earnout Period (i.e., on or before March 17, 2025), by wire transfer of immediately available funds to the account or accounts designated by Seller.
(f) Buyer's Operational Covenants During Earnout Period. During the Earnout Period:
(i) Buyer shall operate the Business in good faith and in the ordinary course consistent with Seller's past practice, taking into account the integration of the Business into Buyer's existing operations;
(ii) Buyer shall not take any action with the primary purpose of reducing Gallons Shipped in order to avoid or reduce the Earnout Amount;
(iii) Buyer shall use commercially reasonable efforts to promote, market, and sell ProShield-branded coatings products during the Earnout Period, consistent with a reasonable business plan for the Business;
(iv) Notwithstanding the foregoing, nothing in this Section 3.3(f) shall limit Buyer's right, in its sole and absolute discretion, to operate the Business (and its other businesses) in a manner that Buyer believes, acting in good faith, to be in the best interests of Buyer and its Affiliates, including the right to make decisions regarding pricing, product mix, capital expenditures, staffing levels, customer relationships, marketing strategy, and overall business strategy, so long as such decisions are not made with the primary purpose of reducing Gallons Shipped to avoid or reduce the Earnout Amount; and
(v) Buyer shall maintain accurate records of Gallons Shipped during the Earnout Period in accordance with its standard record-keeping practices and shall make such records available to Seller or Seller's designated representatives upon reasonable prior written request (and no more frequently than once per calendar quarter), at mutually convenient times during normal business hours, subject to the execution by Seller (or such representatives) of customary confidentiality agreements in form and substance reasonably satisfactory to Buyer.
Section 3.4 — Purchase Price Allocation.
The Purchase Price (including, for this purpose, the Escrow Amount, the Earnout Amount (if any), and any Assumed Liabilities to the extent properly treated as additional consideration for United States federal income Tax purposes) shall be allocated among the Acquired Assets in accordance with Section 1060 of the Code and the Treasury Regulations promulgated thereunder, as set forth on the allocation schedule attached hereto as Schedule 3.4 (the "Allocation Schedule"). The Allocation Schedule shall be prepared by Buyer and delivered to Seller within thirty (30) days after the Closing Date. Seller shall have fifteen (15) days to review the Allocation Schedule and propose any changes thereto, and Buyer and Seller shall negotiate in good faith to resolve any disagreements. Each of Buyer and Seller shall (a) file all Tax Returns (including IRS Form 8594 and any required exhibits thereto) and information reports in a manner consistent with the agreed Allocation Schedule and (b) not take any position (whether in audits, Tax Returns, or otherwise) that is inconsistent with the Allocation Schedule unless required to do so by a final "determination" within the meaning of Section 1313(a) of the Code. If the Earnout Amount is determined after the Closing, the Allocation Schedule shall be adjusted in accordance with the principles set forth therein and in compliance with Section 1060 of the Code and the applicable Treasury Regulations.
Section 3.5 — Withholding.
Buyer shall be entitled to deduct and withhold from any amounts payable pursuant to this Agreement such amounts as Buyer is required to deduct and withhold under the Code, or any provision of federal, state, local, or foreign Tax Law. To the extent that amounts are so withheld and remitted to the applicable Governmental Authority, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the Person in respect of which such deduction and withholding was made.
ARTICLE IV — CLOSING
Section 4.1 — Closing Date and Location.
The closing of the transactions contemplated by this Agreement (the "Closing") shall take place at 10:00 a.m. Eastern Time on the Target Closing Date (January 16, 2023), or on such other date as Buyer and Seller may mutually agree in writing (the "Closing Date"). The Closing may take place remotely via the electronic exchange of signature pages and other closing deliverables, or at such other place as Buyer and Seller may mutually agree. The actual Closing Date was January 20, 2023. For all purposes of this Agreement, the Closing shall be deemed to have been effective as of 12:01 a.m. Eastern Time on the Closing Date.
Section 4.2 — Deliverables of Seller at Closing.
At or prior to the Closing, Seller shall deliver (or cause to be delivered) to Buyer each of the following:
(a) The Bill of Sale, substantially in the form attached hereto as Exhibit A, duly executed by Seller;
(b) The Assignment and Assumption Agreement, substantially in the form attached hereto as Exhibit D, duly executed by Seller;
(c) The IP Assignment, substantially in the form attached hereto as Exhibit E, duly executed by Seller;
(d) The Escrow Agreement, substantially in the form attached hereto as Exhibit B, duly executed by Seller;
(e) The Transition Services Agreement, substantially in the form attached hereto as Exhibit C, duly executed by Seller;
(f) A certificate, dated as of the Closing Date, executed by an authorized officer of Seller, certifying the satisfaction of the conditions set forth in Section 8.2(a), Section 8.2(b), and Section 8.2(c);
(g) A certificate of the Secretary (or equivalent officer) of Seller, dated as of the Closing Date, certifying and attaching (i) resolutions of the board of directors and shareholders of Seller authorizing the execution, delivery, and performance of this Agreement and the other Transaction Documents and the consummation of the transactions contemplated hereby and thereby, (ii) the articles of incorporation of Seller, as amended and in effect as of the Closing Date, (iii) the bylaws of Seller, as amended and in effect as of the Closing Date, and (iv) the incumbency and specimen signatures of the officers of Seller executing this Agreement and the other Transaction Documents;
(h) A certificate of good standing (or certificate of existence) of Seller, issued by the Secretary of State of the State of New York, dated not more than ten (10) days prior to the Closing Date;
(i) A certificate of non-foreign status of Seller, duly executed by Seller and meeting the requirements of Treasury Regulations Section 1.1445-2(b)(2), in form and substance reasonably satisfactory to Buyer (a "FIRPTA Certificate");
(j) Evidence, in form and substance reasonably satisfactory to Buyer, that all required third-party consents identified on Schedule 4.2(j) have been obtained, including landlord consent from Niagara Industrial Realty LLC;
(k) Non-competition and non-solicitation agreements of Frederick G. Voss and Elena M. Voss, to the extent the covenants set forth in Sections 7.5 and 7.6 of this Agreement are not deemed sufficient by Buyer, duly executed by each Seller Principal; and
(l) All other documents, instruments, certificates, and agreements required to be delivered by Seller at the Closing pursuant to this Agreement or reasonably requested by Buyer in connection with the consummation of the transactions contemplated hereby.
Section 4.3 — Deliverables of Buyer at Closing.
At or prior to the Closing, Buyer shall deliver (or cause to be delivered) to Seller (or, as applicable, to the Escrow Agent) each of the following:
(a) The Closing Payment in the amount of Fourteen Million Five Hundred Thousand Dollars ($14,500,000), by wire transfer of immediately available funds to the account or accounts designated by Seller;
(b) The Escrow Amount in the amount of Two Million Dollars ($2,000,000), deposited with the Escrow Agent by wire transfer of immediately available funds;