CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGED DRAFT — SUBJECT TO FURTHER REVISION AND NEGOTIATION NOT AN EXECUTED AGREEMENT
ASSET PURCHASE AGREEMENT
by and between
MERIDIAN CONSUMER BRANDS LLC, a Delaware limited liability company (the "Buyer")
and
BRIARWOOD HOME ESSENTIALS, INC., an Ohio corporation (the "Seller")
Dated as of September 15, 2022
SECOND REVISED DRAFT
Prepared by Calderwood & Harkness LLP Circulated to Caldwell, Pruitt & Shaw LLP
Calderwood & Harkness LLP Matter No. 1011-00005
TABLE OF CONTENTS
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ARTICLE I — DEFINITIONS
Section 1.1 — Definitions
As used in this Agreement, the following terms shall have the meanings set forth below:
"Accounts Receivable" means all trade accounts receivable and other rights to payment from customers of the Business as of the Closing Date, including all trade accounts, notes receivable, and negotiable instruments attributable to the Business, together with any unpaid financing charges accrued thereon. For reference purposes, the aggregate amount of Accounts Receivable attributable to the Business was approximately $9,700,000 as of June 30, 2022.
"Acquired Assets" has the meaning set forth in Section 2.1. For the avoidance of doubt, the Acquired Assets include all assets, properties, and rights of every kind and description, whether tangible or intangible, real, personal, or mixed, used or held for use primarily in connection with the Business (including the CleanLeaf and PureHaven product lines), but excluding the Excluded Assets. The scope of this definition reflects agreed carve-outs for certain shared-use assets and corporate-level assets as set forth on Schedule 2.2, while retaining the broader formulation set forth herein with respect to all other assets of the Business.
"Affiliate" means, with respect to any Person, any other Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "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 ownership of voting securities, by contract, or otherwise.
"Agreement" means this Asset Purchase Agreement, together with all Schedules and Exhibits attached hereto, as the same may be amended, supplemented, or modified from time to time in accordance with Section 11.5.
"Ancillary Agreements" means the Bill of Sale, the Assignment and Assumption Agreement, the IP Assignment Agreement, the Transition Services Agreement, the Escrow Agreement, the Non-Competition Agreement, and each other agreement, document, instrument, or certificate contemplated by this Agreement to be executed and delivered in connection with the transactions contemplated hereby.
"Assigned Contracts" means the contracts, agreements, and arrangements listed on Schedule 2.1(d), consisting of twenty-three (23) customer contracts and other material contracts related to the Business, including the contracts identified therein as requiring third-party consent for assignment.
"Assignment and Assumption Agreement" means the Assignment and Assumption Agreement substantially in the form attached hereto as Exhibit B.
"Assumed Liabilities" has the meaning set forth in Section 2.3.
"Bill of Sale" means the Bill of Sale substantially in the form attached hereto as Exhibit A.
"Business" means the consumer home cleaning and personal care product line business operated by Seller under the "CleanLeaf" and "PureHaven" brand names, consisting of approximately one hundred forty-two (142) active stock-keeping units ("SKUs"), including the manufacturing, marketing, distribution, and sale of all products sold under the CleanLeaf and PureHaven brands, but specifically excluding the Retained Business.
"Business Day" means any day other than a Saturday, a Sunday, or any day on which banking institutions located in New York, New York are authorized or required by Law or governmental action to close. For the avoidance of doubt, federal holidays observed in the State of New York shall not constitute Business Days.
"Buyer" means Meridian Consumer Brands LLC, a Delaware limited liability company, and its successors and permitted assigns.
"Buyer's Knowledge" or "to the knowledge of Buyer" means the actual knowledge, as of the date of determination, of Gareth Holloway (CEO & Managing Member), Priya Anand (Chief Financial Officer), and Diana Ressler (General Counsel), in each case without any obligation of inquiry or investigation.
"Cash Consideration" means Eighty-Seven Million Dollars ($87,000,000), being the Purchase Price minus the Earnout Amount.
"Closing" has the meaning set forth in Section 3.1.
"Closing Date" has the meaning set forth in Section 3.1.
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidentiality Agreement" means the confidentiality provisions set forth in the Letter of Intent dated March 28, 2022, between Buyer and Seller, as supplemented by the mutual confidentiality obligations set forth in Section 6.4 of this Agreement.
"Consent" means any consent, approval, authorization, waiver, permit, grant, franchise, concession, agreement, license, exemption, or order of, registration, certificate, declaration, or filing with, or report or notice to, any Person, including any Governmental Authority or any other third party.
"Disclosure Schedules" means the disclosure schedules delivered by Seller to Buyer pursuant to Article IV of this Agreement. The Parties acknowledge that a partial first draft of the Disclosure Schedules was delivered on September 28, 2022, and that the Disclosure Schedules remain subject to completion and updating by Seller prior to Closing.
"Distribution Center" means the real property and improvements located at 500 Commerce Boulevard, West Jefferson, OH 43162, which is owned by Seller in fee simple and is included among the Acquired Assets.
"Earnout Amount" means Eight Million Dollars ($8,000,000), subject to and payable upon achievement of the Earnout Milestone in accordance with Section 2.8 of this Agreement.
"Earnout Milestone" means Year 1 Revenue (as defined herein) equal to or greater than Seventy-Two Million Dollars ($72,000,000).
"Earnout Period" means the twelve (12)-month period commencing on the Closing Date and ending on the first anniversary of the Closing Date.
"Encumbrance" means any lien, pledge, charge, claim, mortgage, deed of trust, security interest, option, right of first refusal, right of first offer, preemptive right, easement, covenant, restriction, encroachment, encumbrance, or other similar restriction or limitation of any kind or nature whatsoever, whether voluntary or involuntary, choate or inchoate, filed or unfiled, scheduled or unscheduled, noticed or unnoticed.
"Environmental Laws" means all federal, state, and local Laws relating to pollution or protection of the environment or human health and safety (to the extent related to exposure to Hazardous Materials), including the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA"), 42 U.S.C. §§ 9601 et seq., the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. §§ 6901 et seq., the Clean Water Act ("CWA"), 33 U.S.C. §§ 1251 et seq., the Clean Air Act, 42 U.S.C. §§ 7401 et seq., the Toxic Substances Control Act, 15 U.S.C. §§ 2601 et seq., and their state equivalents and any regulations promulgated thereunder, each as amended from time to time.
"Escrow Agent" means Atlantic Fiduciary Trust Company, a national banking association.
"Escrow Agreement" means the Escrow Agreement substantially in the form attached hereto as Exhibit E, to be entered into by and among Buyer, Seller, and the Escrow Agent at or prior to Closing.
"Escrow Amount" means Nine Million Five Hundred Thousand Dollars ($9,500,000), being ten percent (10%) of the Purchase Price, to be deposited with the Escrow Agent at Closing pursuant to the Escrow Agreement.
"Escrow Period" means the twenty-four (24)-month period commencing on the Closing Date and ending at 5:00 p.m. (Eastern Time) on the second anniversary of the Closing Date.
"Excluded Assets" has the meaning set forth in Section 2.2.
"Excluded Liabilities" has the meaning set forth in Section 2.4.
"Fundamental Representations" means the representations and warranties of Seller set forth in Section 4.1 (Organization and Good Standing), Section 4.2 (Authority and Enforceability), Section 4.3 (Title to Acquired Assets), Section 4.14 (Brokers), and Section 4.15 (Tax Matters), which shall survive the Closing indefinitely in accordance with Section 9.1.
"GAAP" means United States generally accepted accounting principles as in effect from time to time, applied on a basis consistent with the basis on which the Financial Statements were prepared.
"Governing Law" means the laws of the State of New York, without regard to conflict of laws principles that would result in the application of the laws of any other jurisdiction.
"Governmental Authority" means any federal, state, provincial, local, municipal, foreign, or other government or governmental or quasi-governmental authority of any nature, including any governmental agency, branch, department, official, entity, or instrumentality, or any court, tribunal, or arbitrator.
"Hazardous Materials" 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 and petroleum by-products, asbestos and asbestos-containing materials, polychlorinated biphenyls, lead, radon, and per- and polyfluoroalkyl substances (PFAS).
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder.
"Indemnification Basket" or "Deductible" means Nine Hundred Fifty Thousand Dollars ($950,000), being one percent (1%) of the Purchase Price. The Indemnification Basket shall operate as a tipping basket, meaning that once aggregate Losses exceed the Indemnification Basket, the indemnifying Party shall be liable for all Losses from the first dollar, not merely the excess over the Indemnification Basket.
"Indemnification Cap" means Thirty-Three Million Two Hundred Fifty Thousand Dollars ($33,250,000), being thirty-five percent (35%) of the Purchase Price.
"Indemnified Person" means any Person entitled to indemnification under Article IX of this Agreement.
"intellectual Property" means all intellectual property and proprietary rights of any kind or nature, including (a) trademarks, service marks, trade names, brand names, trade dress, logos, slogans, and Internet domain names, together with all goodwill associated therewith and all registrations and applications for registration thereof; (b) trade secrets, know-how, confidential business information, formulations, recipes, processes, techniques, methods, and procedures; (c) copyrights and copyrightable works, and all registrations and applications for registration thereof; (d) patents and patent applications; and (e) all rights to sue for and remedies against past, present, and future infringements of any of the foregoing, in each case as associated with the CleanLeaf and PureHaven brand names and the Business.
"Inventory" means all raw materials, work-in-process, finished goods, packaging materials, labels, supplies, and other inventories related to the Business, wherever located, including all Inventory held at the Manufacturing Facility, the Distribution Center, and any third-party warehouses. The book value of the Inventory as of June 30, 2022, as reflected on Seller's books and records, was $14,300,000.
"IP Assignment Agreement" means the intellectual Property Assignment Agreement substantially in the form attached hereto as Exhibit C.
"Knowledge of Seller" or "to the knowledge of Seller" or "Seller's Knowledge" means the actual knowledge, after reasonable inquiry of the direct reports of such individuals and a review of the relevant files and records of the Business, of Malcolm Greer (President and sole shareholder of Seller) and Janet Tsao (Vice President of Operations of Seller).
"Law" means any federal, state, local, municipal, foreign, international, or other law, statute, legislation, constitution, principle of common law, resolution, ordinance, code, edict, decree, proclamation, treaty, convention, rule, regulation, ruling, directive, pronouncement, requirement, specification, determination, decision, opinion, or interpretation issued, enacted, adopted, passed, approved, promulgated, made, implemented, or otherwise put into effect by or under the authority of any Governmental Authority.
"Lease" means the commercial lease agreement dated July 1, 2017, as amended, by and between Seller, as tenant, and Buckeye Industrial Properties LLC, as landlord, for the premises located at 2800 Industrial Parkway, Marysville, OH 43040, which constitutes the Manufacturing Facility.
"Letter of Intent" means the Letter of Intent dated March 28, 2022, between Buyer and Seller, setting forth the principal terms of the transactions contemplated by this Agreement.
"Losses" means any and all losses, damages, liabilities, deficiencies, judgments, interest, awards, penalties, fines, costs, or expenses of whatever kind, including reasonable attorneys' fees and expenses, experts' fees and expenses, and the cost of enforcing any right to indemnification hereunder and the cost of pursuing any insurance providers; provided, however, that "Losses" shall not include punitive damages (except to the extent awarded to a third party) or consequential damages that are not reasonably foreseeable.
"Manufacturing Facility" means the manufacturing facility and related improvements located at 2800 Industrial Parkway, Marysville, OH 43040, leased by Seller from Buckeye Industrial Properties LLC pursuant to the Lease.
"Material Adverse Effect" means any event, occurrence, fact, condition, change, development, or effect that, individually or in the aggregate, has had or would reasonably be expected to have a material 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 in no event shall any of the following, alone or in combination, be deemed to constitute, or be taken into account in determining whether there has been or will be, a Material Adverse Effect: (i) changes in general economic, financial, or political conditions; (ii) changes in conditions generally affecting the consumer products industry in the United States; (iii) changes in applicable Law or GAAP or the interpretation thereof after the date hereof; (iv) acts of war, armed hostilities, sabotage, terrorism, or military actions, or any escalation or worsening thereof; (v) epidemics, pandemics, or disease outbreaks (including COVID-19); (vi) changes resulting from the announcement, pendency, or consummation of the transactions contemplated by this Agreement; (vii) changes resulting from any action taken or omitted to be taken by Seller at the written request of Buyer; or (viii) any failure by the Business to meet any internal or published projections, forecasts, estimates, or predictions (provided that the underlying causes of 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), (iv), and (v), to the extent that such changes disproportionately affect the Business relative to other businesses operating in the consumer products industry in the United States.
"Non-Competition Agreement" means the Non-Competition and Non-Solicitation Agreement substantially in the form attached hereto as Exhibit F, to be executed by Malcolm Greer at or prior to Closing.
"Ordinary Course of Business" means the ordinary and usual course of normal day-to-day operations of the Business through the date hereof, consistent with past custom and practice (including with respect to quantity, frequency, and timing).
"Outside Date" means the date that is one hundred eighty (180) days after the date of this Agreement, as such date may be extended by mutual written agreement of the Parties.
"Party" means Buyer or Seller, individually; "Parties" means Buyer and Seller, collectively.
"Permitted Encumbrances" means the Encumbrances set forth on Schedule 2.1(g), together with (a) statutory liens for Taxes not yet due and payable or the amount or validity of which is 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', and similar statutory liens arising or incurred in the Ordinary Course of Business for amounts not yet overdue; and (c) zoning, entitlement, conservation, and other land use and environmental regulations by Governmental Authorities that do not materially interfere with the present use of the applicable real property.
"Person" means any individual, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization, Governmental Authority, or any other entity.
"Phase I ESA" means the Phase I Environmental Site Assessment report numbered TEG-2022-0441, prepared by Terrapoint Environmental Group, Inc., dated September 2, 2022, with respect to the Manufacturing Facility.
"Purchase Price" means Ninety-Five Million Dollars ($95,000,000), consisting of the Cash Consideration ($87,000,000) and the Earnout Amount ($8,000,000), subject to adjustment as provided in Section 2.7 and Section 2.8.
"Reference Inventory Value" means $14,300,000, being the book value of the Inventory as reflected on Seller's books and records as of June 30, 2022.
"Retained Business" means Seller's commercial janitorial services division, including all assets, liabilities, employees, and operations related thereto, which is not being sold to Buyer and constitutes an Excluded Asset.
"Seller" means Briarwood Home Essentials, Inc., an Ohio corporation, and its successors and permitted assigns.
"Seller's Auditor" means Hargrove & Linton, P.C., the independent certified public accounting firm engaged by Seller.
"Survival Period" means, with respect to the representations and warranties set forth in this Agreement, (a) twenty-four (24) months from the Closing Date for general representations and warranties, and (b) an indefinite period for the Fundamental Representations, in each case as more fully described in Section 9.1.
"Tax" or "Taxes" means (a) all federal, state, local, municipal, foreign, and other taxes, duties, levies, imposts, fees, assessments, and charges of any kind whatsoever, including income, franchise, profits, gross receipts, capital gains, capital stock, production, ad valorem, transfer, sales, use, license, excise, severance, stamp, occupation, premium, real property, personal property (tangible and intangible), escheat, abandoned or unclaimed property obligations, environmental, customs, duties, estimated, withholding, payroll, social security, unemployment compensation, disability, and workers' compensation taxes, and any similar charges; (b) all interest, penalties, fines, additions to tax, or additional amounts imposed in connection with any item described in clause (a); and (c) all liability for the payment of any amounts described in clauses (a) or (b) as a result of being a member of an affiliated, consolidated, combined, or unitary group, or as a result of any obligation under any Tax sharing, Tax indemnification, or Tax allocation agreement or arrangement.
"Transferred Employees" means those approximately one hundred eighty-six (186) employees of Seller who are engaged primarily in the Business and to whom Buyer extends offers of employment in accordance with Section 6.6 of this Agreement.
"Transition Services Agreement" or "TSA" means the Transition Services Agreement substantially in the form attached hereto as Exhibit D, pursuant to which Seller will provide certain transitional services to Buyer following the Closing.
"Year 1 Revenue" means the net revenue of the Business during the Earnout Period, calculated in accordance with GAAP applied on a basis consistent with Seller's historical practices as reflected in the Financial Statements. Net revenue shall mean gross revenues less returns, allowances, discounts, and credits, determined in accordance with GAAP.
Section 1.2 — Rules of Construction
For purposes of this Agreement, the following rules of interpretation and construction shall apply:
(a) The headings, captions, and titles of the Articles and Sections of this Agreement are for convenience of reference only and shall not be considered a part hereof or affect in any way the meaning or interpretation of this Agreement.
(b) Whenever the context may require, any pronoun used in this Agreement shall include the corresponding masculine, feminine, or neuter form, and the singular form of nouns, pronouns, and verbs shall include the plural and vice versa.
(c) The words "include," "includes," and "including" shall be deemed to be followed by the phrase "without limitation" and shall not be construed to limit any general statement that precedes such words to the specific or similar items or matters that follow such words.
(d) Unless the context otherwise requires, references to any Law shall be deemed to refer to such Law as amended, re-enacted, consolidated, or replaced from time to time, and all rules and regulations promulgated thereunder.
(e) References to any contract, agreement, or instrument shall mean such contract, agreement, or instrument as amended, supplemented, or modified from time to time in accordance with the terms thereof.
(f) References to "$" or "Dollars" shall mean the lawful currency of the United States of America.
(g) The words "herein," "hereof," "hereby," "hereunder," and words of similar import shall refer to this Agreement as a whole, and not to any particular provision of this Agreement.
(h) References to "days" shall mean calendar days unless the term "Business Days" is used.
(i) All Schedules and Exhibits attached to this Agreement are hereby incorporated in and made a part of this Agreement as if set forth in full herein. Any capitalized term used in any Schedule or Exhibit but not otherwise defined therein shall have the meaning assigned to such term in this Agreement.
(j) This Agreement shall be construed without regard to any presumption or rule requiring construction or interpretation against the party drafting an instrument or causing any instrument to be drafted.
(k) The Parties have participated jointly in the negotiation and drafting of this Agreement, and in the event an ambiguity or question of intent or interpretation 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 of the provisions of this Agreement.
ARTICLE II — PURCHASE AND SALE OF ASSETS; ASSUMPTION OF LIABILITIES
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 (collectively, the "Acquired Assets"), free and clear of all Encumbrances other than Permitted Encumbrances:
(a) Inventory. All raw materials, work-in-process, finished goods, packaging materials, labels, supplies, and other inventories related to the Business, wherever located, including all Inventory at the Manufacturing Facility, the Distribution Center, and any third-party warehouses. The book value of the Inventory as of June 30, 2022, as reflected on Seller's books and records, was $14,300,000. The final value of the Inventory to be conveyed at Closing shall be subject to the inventory adjustment mechanism set forth in Section 2.7.
(b) Accounts Receivable. All trade accounts receivable and other rights to payment from customers of the Business outstanding as of the Closing Date, including all trade accounts, notes receivable, and negotiable instruments, together with any unpaid financing charges accrued thereon. As of June 30, 2022, the aggregate amount of Accounts Receivable attributable to the Business was approximately $9,700,000.
(c) Equipment and Tangible Personal Property. All manufacturing equipment, machinery, tools, molds, dies, production lines, furniture, fixtures, computer hardware, vehicles, and other tangible personal property owned by Seller and used or held for use primarily in the Business, whether located at the Manufacturing Facility, the Distribution Center, or elsewhere.
(d) Assigned Contracts. All of Seller's right, title, and interest in and to the contracts, agreements, and arrangements listed on Schedule 2.1(d), consisting of twenty-three (23) customer contracts and other material contracts related to the Business, subject, in the case of certain contracts, to the requirements of Section 2.5 regarding non-assignable assets.
(e) intellectual Property. All intellectual Property owned by Seller and used or held for use primarily in connection with the Business, including all right, title, and interest in and to the "CleanLeaf" and "PureHaven" trademarks, trade names, trade dress, logos, slogans, and related brand assets; all Internet domain names associated with the Business; all product formulations, recipes, processes, and manufacturing know-how; and all trade secrets, confidential information, and proprietary data related to the Business.
(f) Real Property. (i) The fee simple interest in the Distribution Center located at 500 Commerce Boulevard, West Jefferson, OH 43162, together with all buildings, structures, improvements, fixtures, and appurtenances thereto; and (ii) the leasehold interest in the Manufacturing Facility located at 2800 Industrial Parkway, Marysville, OH 43040, pursuant to the Lease with Buckeye Industrial Properties LLC, subject to obtaining the Landlord Consent as contemplated by Section 2.5 and Section 6.3.
(g) Books and Records. All books, records, files, and documents of Seller relating to the Business, including customer lists, vendor lists, supplier lists, production records, quality control records, product testing records, sales and marketing records, and all other business records related to the Acquired Assets and the Business; provided, however, that Seller shall be entitled to retain copies of such books and records to the extent reasonably necessary for Tax, legal, or regulatory purposes.
(h) Permits and Licenses. To the extent transferable under applicable Law, all permits, licenses, certifications, registrations, approvals, authorizations, and similar rights obtained from any Governmental Authority and held by Seller in connection with the Business.
(i) Goodwill. All goodwill associated with the Business, the CleanLeaf brand, the PureHaven brand, and the Acquired Assets.
(j) Prepaid Expenses and Deposits. All prepaid expenses, deposits, advance payments, and prepaid items of Seller related to the Business, including security deposits under the Lease and deposits with utilities, vendors, and suppliers.
(k) Claims and Causes of Action. All claims, causes of action, choses in action, rights of recovery, and rights of set-off of any kind related to the Acquired Assets, whether arising by way of counterclaim or otherwise, including rights under warranties and guarantees from suppliers and manufacturers.
(l) Product Registrations and Regulatory Approvals. All product registrations, regulatory approvals, clearances, listings, certifications, and similar authorizations related to the Business, to the extent transferable under applicable Law.
Section 2.2 — Excluded Assets
Notwithstanding anything to the contrary in Section 2.1, the following assets, properties, and rights of Seller (collectively, the "Excluded Assets") are excluded from the Acquired Assets and shall be retained by Seller:
(a) Retained Business. All assets, properties, and rights of every kind and description relating to or used or held for use in Seller's commercial janitorial services division (the Retained Business), including all contracts, inventory, equipment, customer lists, trade names, and goodwill associated therewith.
(b) Corporate Headquarters Lease. The lease for Seller's corporate headquarters located at 1175 Creekside Drive, Suite 400, Columbus, OH 43215, and all leasehold improvements, furniture, fixtures, and equipment located therein.
(c) Cash and Cash Equivalents. All cash on hand, cash in banks, certificates of deposit, money market accounts, and other cash equivalents of Seller, wherever located.
(d) Tax Refunds and Credits. All Tax refunds, Tax credits, and rights to receive Tax refunds or Tax credits attributable to the Acquired Assets or the Business for all pre-Closing Tax periods.
(e) Organizational Documents and Corporate Records. Seller's certificate of incorporation, bylaws, corporate seal, minute books, stock ledgers, stock transfer records, and Tax records, other than Tax records exclusively relating to the Business.
(f) Rights Under This Agreement and Ancillary Agreements. All rights of Seller under this Agreement and the Ancillary Agreements.
(g) Insurance Policies. All insurance policies of Seller and all rights to applicable claims and proceeds thereunder, subject to Seller's obligation under Section 6.10 to maintain existing insurance policies through Closing.
(h) Employee Benefit Plan Assets. All assets of or relating to any employee benefit plan of Seller, including Seller's 401(k) plan and all other qualified and non-qualified retirement plans, welfare benefit plans, and similar employee benefit arrangements.
(i) Other Assets Not Related to the Business. All other assets, properties, and rights of Seller that are not used or held for use primarily in connection with the Business.
The Excluded Assets are more fully described on Schedule 2.2 attached hereto.
Section 2.3 — Assumed Liabilities
Upon the terms and subject to the conditions of this Agreement, effective as of the Closing, Buyer shall assume and agree to pay, perform, and discharge only the following liabilities and obligations of Seller (collectively, the "Assumed Liabilities"), and no other liabilities or obligations of Seller:
(a) Trade Payables. All trade accounts payable and accrued expenses of the Business outstanding as of the Closing Date that were incurred by Seller in the Ordinary Course of Business. As of June 30, 2022, the estimated aggregate amount of such trade payables was approximately $4,200,000.
(b) Accrued Product Warranty Obligations. All accrued product warranty obligations of the Business as of the Closing Date, including all warranty claims made after the Closing Date with respect to products of the Business sold or distributed by Seller prior to the Closing Date, in an aggregate estimated amount of $620,000 as of June 30, 2022.
(c) Post-Closing Contract Obligations. All obligations under the Assigned Contracts arising and to be performed after the Closing Date, but only to the extent such obligations do not arise from or relate to any breach, default, or violation by Seller occurring prior to the Closing Date.
(d) Post-Closing Operational Liabilities. All liabilities and obligations arising out of Buyer's ownership, operation, or use of the Acquired Assets after the Closing Date.
The Assumed Liabilities are more fully described on Schedule 2.3 attached hereto.
Section 2.4 — Excluded Liabilities
Notwithstanding anything to the contrary in this Agreement, Buyer shall not assume and shall not be responsible for any liabilities or obligations of Seller of any kind or nature whatsoever, whether known or unknown, absolute or contingent, accrued or unaccrued, asserted or unasserted, liquidated or unliquidated, due or to become due, and whether or not relating to the Business, other than the Assumed Liabilities (all such liabilities and obligations not being assumed being herein referred to as the "Excluded Liabilities"). Without limiting the generality of the foregoing, the Excluded Liabilities shall include the following:
(a) Pre-Closing Liabilities. All liabilities and obligations of Seller arising from or relating to the operation of the Business or the ownership of the Acquired Assets prior to the Closing Date that are not expressly assumed by Buyer as Assumed Liabilities.
(b) Environmental Liabilities. All liabilities and obligations arising from or relating to (i) the presence, Release, or threatened Release of Hazardous Materials on, at, under, or migrating to or from any real property owned, leased, or operated by Seller prior to the Closing Date, and (ii) any violation of Environmental Laws occurring prior to the Closing Date, including any recognized environmental conditions identified in the Phase I ESA or any subsequent Phase II Environmental Site Assessment.
(c) Product Liability Claims. All liabilities and obligations arising from or relating to product liability claims, personal injury claims, or property damage claims to the extent arising from products manufactured, sold, distributed, or otherwise placed into the stream of commerce by Seller prior to the Closing Date, other than the accrued product warranty obligations included in the Assumed Liabilities.
(d) Employee Benefit Plan Liabilities. All liabilities and obligations arising from or relating to any employee benefit plan, program, policy, or arrangement of Seller, including Seller's 401(k) plan and all other qualified and non-qualified retirement plans, welfare benefit plans, and similar employee benefit arrangements, whenever arising.
(e) Pre-Closing Tax Liabilities. All Tax liabilities of Seller for all pre-Closing Tax periods, including any Tax liabilities arising from the consummation of the transactions contemplated by this Agreement.
(f) Indebtedness. All funded indebtedness, notes payable, and long-term debt obligations of Seller, including principal, interest, prepayment premiums, and breakage costs.
(g) Retained Business Liabilities. All liabilities and obligations of Seller arising from or relating to the Retained Business.
Section 2.5 — Non-Assignable Assets
(a) Notwithstanding anything to the contrary in this Agreement, to the extent that the sale, assignment, transfer, or delivery, or attempted sale, assignment, transfer, or delivery, to Buyer of any Assigned Contract or other Acquired Asset would require the Consent of any third party (each, a "Non-Assignable Asset"), and such Consent has not been obtained prior to the Closing, this Agreement shall not constitute a sale, assignment, transfer, or delivery of such Non-Assignable Asset, and Seller shall not be required to assign or transfer such Non-Assignable Asset at the Closing.
(b) The Parties acknowledge that seven (7) of the twenty-three (23) Assigned Contracts listed on Schedule 2.1(d) contain change-of-control or assignment consent provisions requiring the prior written consent of the applicable counterparty to assignment, and that the Lease with Buckeye Industrial Properties LLC requires the prior written consent of the landlord (the "Landlord Consent") for any assignment or subletting.
(c) With respect to each Non-Assignable Asset for which the required Consent has not been obtained prior to or at the Closing, and to the extent permitted by applicable Law and the terms of such Non-Assignable Asset, (i) Seller shall hold such Non-Assignable Asset in trust for the use and benefit of Buyer and shall, at the direction and expense of Buyer, take all commercially reasonable actions to provide to Buyer the economic benefits and burdens of such Non-Assignable Asset as if such Non-Assignable Asset had been sold, assigned, transferred, and delivered to Buyer at the Closing, and (ii) Buyer shall perform, on behalf of Seller, all of Seller's obligations under such Non-Assignable Asset arising and to be performed after the Closing Date.
(d) Following the Closing, each Party shall use commercially reasonable efforts to obtain any required Consent with respect to each Non-Assignable Asset, and upon obtaining such Consent, Seller shall promptly assign, transfer, and deliver such Non-Assignable Asset to Buyer at no additional cost to Buyer.
Section 2.6 — Further Assurances
From and after the Closing, each Party shall, and shall cause its Affiliates to, execute and deliver such additional instruments, documents, conveyances, and assurances and take such further actions as may be reasonably required to carry out the provisions of this Agreement and give effect to the transactions contemplated hereby, including the transfer and vesting of good and marketable title to the Acquired Assets in Buyer, free and clear of all Encumbrances other than Permitted Encumbrances.
Section 2.7 — Inventory Adjustment
(a) Pre-Closing Inventory Count. No earlier than five (5) Business Days prior to the anticipated Closing Date, Buyer and Seller shall jointly conduct a physical inventory count (the "Physical Count") of all Inventory at the Manufacturing Facility, the Distribution Center, and any other location where Inventory is stored. Each Party may have its representatives present during the Physical Count, including, in the case of Buyer, representatives of Whitfield Ames LLP.
(b) Inventory Valuation. Following the Physical Count, Buyer and Seller shall cooperate in good faith to determine the net realizable value of the Inventory as of the Closing Date (the "Closing Inventory Value"). The Inventory shall be valued at the lower of cost or net realizable value ("NRV"), determined in accordance with GAAP applied on a basis consistent with Seller's historical practices. For purposes of this Section 2.7, "net realizable value" means the estimated selling price of the Inventory in the Ordinary Course of Business, less reasonably predictable costs of completion, disposal, and transportation. In determining NRV, the Parties shall take into account, among other factors, the age, condition, and salability of the Inventory, including provisions for obsolete, slow-moving, damaged, or expired items.
(c) Adjustment Mechanism. If the Closing Inventory Value differs from the Reference Inventory Value ($14,300,000) by more than Two Hundred Fifty Thousand Dollars ($250,000) (the "Inventory Threshold"), the Cash Consideration shall be adjusted dollar-for-dollar for the full amount of such difference (not merely the amount in excess of the Inventory Threshold). If the Closing Inventory Value exceeds the Reference Inventory Value by more than the Inventory Threshold, the Cash Consideration shall be increased by the difference between the Closing Inventory Value and the Reference Inventory Value. If the Closing Inventory Value is less than the Reference Inventory Value by more than the Inventory Threshold, the Cash Consideration shall be decreased by the difference between the Reference Inventory Value and the Closing Inventory Value. If the difference between the Closing Inventory Value and the Reference Inventory Value is equal to or less than the Inventory Threshold, no adjustment shall be made.
(d) Dispute Resolution. If Buyer and Seller are unable to agree on the Closing Inventory Value within ten (10) Business Days following the Physical Count, either Party may submit the dispute to an independent accounting firm mutually acceptable to the Parties (the "Independent Accounting Firm"). The Independent Accounting Firm shall be instructed to determine the Closing Inventory Value in accordance with the methodology set forth in this Section 2.7, and shall render its determination in writing within thirty (30) days of submission. The determination of the Independent Accounting Firm shall be final, conclusive, and binding upon the Parties, absent manifest error. The fees and expenses of the Independent Accounting Firm shall be borne equally by Buyer and Seller.
(e) Payment of Adjustment. Any payment required to be made pursuant to the adjustment mechanism set forth in this Section 2.7 shall be made by wire transfer of immediately available funds within five (5) Business Days following the final determination of the Closing Inventory Value (whether by agreement of the Parties or by the Independent Accounting Firm).
Section 2.8 — Earnout
(a) Earnout Payment. If the Year 1 Revenue equals or exceeds the Earnout Milestone ($72,000,000), Buyer shall pay to Seller the Earnout Amount ($8,000,000) by wire transfer of immediately available funds within sixty (60) days following the expiration of the Earnout Period.
(b) Calculation of Year 1 Revenue. Buyer shall calculate Year 1 Revenue in accordance with GAAP applied on a basis consistent with Seller's historical practices as reflected in the Financial Statements. Within forty-five (45) days following the expiration of the Earnout Period, Buyer shall deliver to Seller a written statement (the "Earnout Statement") setting forth Buyer's calculation of Year 1 Revenue in reasonable detail.
(c) Review and Dispute. Seller shall have thirty (30) days following receipt of the Earnout Statement to review such statement and provide written objections to Buyer. If Seller does not deliver a written objection within such thirty (30)-day period, the Earnout Statement shall be deemed accepted by Seller and shall be final and binding. If Seller delivers a timely written objection, the Parties shall negotiate in good faith to resolve any disputes for a period of fifteen (15) Business Days. If the Parties are unable to resolve such dispute within such period, either Party may submit the dispute to the Independent Accounting Firm for binding determination in accordance with the procedures set forth in Section 2.7(d), mutatis mutandis.
(d) Conduct of the Business During the Earnout Period. During the Earnout Period, Buyer shall operate the Business in good faith and in the Ordinary Course of Business and shall not take any action, or fail to take any action, with the primary intent of reducing or avoiding payment of the Earnout Amount. For the avoidance of doubt, Buyer shall retain full discretion with respect to the operation of the Business, including pricing, marketing, and product development decisions, and nothing in this Section 2.8(d) shall be construed as imposing on Buyer an affirmative obligation to maximize Year 1 Revenue.
ARTICLE III — CLOSING
Section 3.1 — Closing Date
Subject to the satisfaction or waiver of the conditions precedent set forth in Article VII and Article VIII, the closing of the transactions contemplated by this Agreement (the "Closing") shall take place at the offices of Calderwood & Harkness LLP, 599 Lexington Avenue, 36th Floor, New York, NY 10022 (or remotely via the electronic exchange of fully executed documents and other Closing deliverables, in form and substance reasonably satisfactory to each Party), on a date to be mutually agreed by the Parties that is no later than ten (10) Business Days following the satisfaction or waiver of all conditions precedent set forth in Article VII and Article VIII (other than conditions that by their nature are to be satisfied at the Closing, but subject to the satisfaction or waiver of such conditions at the Closing) (the "Closing Date"). If the Closing has not occurred on or prior to the Outside Date, either Party may terminate this Agreement in accordance with Section 10.1. All proceedings to be taken and all documents to be executed at the Closing shall be deemed to have been taken, delivered, and executed simultaneously, and no proceeding shall be deemed taken nor any document deemed executed or delivered until all have been taken, delivered, and executed.
Section 3.2 — Deliveries by Seller at Closing
At or prior to the Closing, Seller shall deliver or cause to be delivered to Buyer the following:
(a) A Bill of Sale, duly executed by Seller, substantially in the form attached hereto as Exhibit A, conveying to Buyer all of Seller's right, title, and interest in and to the Acquired Assets (other than real property and Assigned Contracts);
(b) An Assignment and Assumption Agreement, duly executed by Seller, substantially in the form attached hereto as Exhibit B, assigning to Buyer all of Seller's right, title, and interest in and to the Assigned Contracts and all related Acquired Assets and evidencing Buyer's assumption of the Assumed Liabilities;
(c) An IP Assignment Agreement, duly executed by Seller, substantially in the form attached hereto as Exhibit C, assigning to Buyer all of Seller's right, title, and interest in and to the intellectual Property;
(d) A Transition Services Agreement, duly executed by Seller, substantially in the form attached hereto as Exhibit D;
(e) An Escrow Agreement, duly executed by Seller, substantially in the form attached hereto as Exhibit E;
(f) A Non-Competition and Non-Solicitation Agreement, duly executed by Malcolm Greer, substantially in the form attached hereto as Exhibit F;
(g) A certificate of good standing (or equivalent) for Seller issued by the Secretary of State of the State of Ohio, dated not more than ten (10) Business Days prior to the Closing Date;
(h) A certificate of the Secretary or an officer of Seller, certifying (i) the resolutions duly adopted by Seller's board of directors (or equivalent governing body) and sole shareholder authorizing the execution, delivery, and performance of this Agreement and the Ancillary Agreements and the consummation of the transactions contemplated hereby, (ii) the incumbency and specimen signatures of the officers of Seller executing this Agreement and the Ancillary Agreements, and (iii) the organizational documents of Seller;
(i) A properly executed non-foreign person affidavit in the form prescribed by Treasury Regulations Section 1.1445-2(b)(2), certifying that Seller is not a "foreign person" within the meaning of Section 1445 of the Code (the "FIRPTA Certificate");
(j) Evidence of the receipt of all required third-party Consents, including (i) the Landlord Consent from Buckeye Industrial Properties LLC for the assignment of the Lease, and (ii) the assignment consents from the counterparties to the seven (7) Assigned Contracts identified on Schedule 4.4 as requiring such consents, in each case in form and substance reasonably satisfactory to Buyer;
(k) The Disclosure Schedules, in final and complete form, updated to reflect any changes occurring between the date of the partial first draft (September 28, 2022) and the Closing Date, in each case in form and substance reasonably satisfactory to Buyer;
(l) A special warranty deed (or equivalent conveyance instrument), duly executed and acknowledged by Seller, in recordable form, conveying to Buyer fee simple title to the Distribution Center at 500 Commerce Boulevard, West Jefferson, OH 43162, free and clear of all Encumbrances other than Permitted Encumbrances;
(m) Possession of the Acquired Assets, including, without limitation, keys, access codes, security cards, and similar items for the Manufacturing Facility and the Distribution Center;
(n) Payoff letters from each holder of any Encumbrance on the Acquired Assets (other than Permitted Encumbrances), together with evidence of the release and termination of such Encumbrances (including UCC-3 termination statements, mortgage satisfactions, and similar instruments), in form suitable for recording or filing;
(o) Title insurance commitments or policies from a title insurance company reasonably acceptable to Buyer, insuring Buyer's fee simple title to the Distribution Center and leasehold interest in the Manufacturing Facility, in amounts and subject to exceptions reasonably satisfactory to Buyer; and
(p) Such other documents, instruments, and certificates as Buyer may reasonably request in connection with the transactions contemplated by this Agreement.
Section 3.3 — Deliveries by 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, the following:
(a) The Cash Consideration of $87,000,000, less the Escrow Amount, for a net amount of $77,500,000, payable by wire transfer of immediately available funds to the account or accounts designated in writing by Seller not less than three (3) Business Days prior to the Closing Date;
(b) The Escrow Amount of $9,500,000, deposited by wire transfer of immediately available funds with Atlantic Fiduciary Trust Company (attention: Gregory Fenn) pursuant to the terms and conditions of the Escrow Agreement;
(c) An Assignment and Assumption Agreement, duly executed by Buyer, substantially in the form attached hereto as Exhibit B;
(d) A Transition Services Agreement, duly executed by Buyer, substantially in the form attached hereto as Exhibit D;
(e) An Escrow Agreement, duly executed by Buyer, substantially in the form attached hereto as Exhibit E;
(f) A certificate of good standing (or equivalent) for Buyer issued by the Secretary of State of the State of Delaware, dated not more than ten (10) Business Days prior to the Closing Date;
(g) A certificate of the Secretary or an officer of Buyer, certifying (i) the resolutions duly adopted by the members or managers of Buyer (as applicable under Buyer's operating agreement) authorizing the execution, delivery, and performance of this Agreement and the Ancillary Agreements and the consummation of the transactions contemplated hereby, (ii) the incumbency and specimen signatures of the officers of Buyer executing this Agreement and the Ancillary Agreements, and (iii) the organizational documents of Buyer;
(h) Evidence of the availability of financing sufficient to consummate the transactions contemplated hereby, including (i) a copy of the executed credit agreement or funding confirmation from Harborview National Bank, N.A., evidencing the availability of $60,000,000 in debt financing on terms materially consistent with the commitment letter dated August 5, 2022, and (ii) a copy of the equity funding confirmation from Lakepoint Capital Partners, LP, evidencing the availability of $35,000,000 in equity financing on terms materially consistent with the commitment letter dated August 12, 2022; and
(i) Such other documents, instruments, and certificates as Seller may reasonably request in connection with the transactions contemplated by this Agreement.
ARTICLE IV — REPRESENTATIONS AND WARRANTIES OF SELLER
Except as set forth in the Disclosure Schedules (each of which shall qualify the specifically identified Section of this Agreement to which such Disclosure Schedule relates and any other Section of this Agreement to the extent the applicability of such disclosure to such other Section is reasonably apparent on its face), Seller represents and warrants to Buyer as of the date hereof and as of the Closing Date as follows:
Section 4.1 — Organization and Good Standing
Seller is a corporation duly organized, validly existing, and in good standing under the laws of the State of Ohio. Seller has full corporate power and authority to own, lease, and operate its properties and to carry on the Business as currently conducted. Seller is duly qualified or licensed to do business and is in good standing as a foreign corporation in each jurisdiction where the character of its properties owned, operated, or leased, or the nature of its activities, makes such qualification or licensing necessary, except where the failure to be so qualified or licensed would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Seller's principal place of business is 1175 Creekside Drive, Suite 400, Columbus, OH 43215.
Section 4.2 — Authority and Enforceability
Seller has full corporate power and authority to execute, deliver, and perform this Agreement and each of the Ancillary Agreements to which it is a party and to consummate the transactions contemplated hereby and thereby. The execution, delivery, and performance by Seller of this Agreement and each Ancillary Agreement to which it is a party, and the consummation by Seller of the transactions contemplated hereby and thereby, have been duly authorized by all necessary corporate action on the part of Seller, including the approval of Malcolm Greer, in his capacities as sole shareholder and President of Seller. No other corporate proceedings on the part of Seller are necessary to authorize the execution, delivery, and performance of this Agreement and the Ancillary Agreements or to consummate the transactions contemplated hereby and thereby. This Agreement has been, and upon their execution and delivery each of the Ancillary Agreements to which Seller is a party will have been, duly executed and delivered by Seller, and this Agreement constitutes, and upon their execution and delivery each of the Ancillary Agreements to which Seller is a party will constitute, the valid and binding obligation of Seller, enforceable against Seller in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, and similar Laws affecting creditors' rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith, and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity).
Section 4.3 — Title to Acquired Assets
Seller is the sole and exclusive owner of, and has good and marketable title to, all of the Acquired Assets, free and clear of all Encumbrances other than Permitted Encumbrances. At the Closing, Seller shall transfer, convey, and deliver to Buyer good and marketable title to all of the Acquired Assets, free and clear of all Encumbrances other than Permitted Encumbrances. No Acquired Asset is subject to any pending or, to Seller's Knowledge, threatened condemnation or eminent domain proceeding.
Section 4.4 — No Conflicts; Consents
(a) Except as set forth on Schedule 4.4, the execution, delivery, and performance of this Agreement and the Ancillary Agreements by Seller, and the consummation by Seller of the transactions contemplated hereby and thereby, do not and will not (i) conflict with or violate any provision of Seller's articles of incorporation, code of regulations, or other organizational documents; (ii) conflict with, result in any breach of, constitute a default (or an event that, with notice or lapse of time or both, would constitute a default) under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice, consent, or waiver under, any material contract, license, or permit to which Seller is a party or by which any of the Acquired Assets are bound; or (iii) violate any Law applicable to Seller or the Acquired Assets, except in the case of clauses (ii) and (iii) as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
(b) Schedule 4.4 sets forth a true, correct, and complete list of all Consents required to be obtained by Seller in connection with the execution, delivery, and performance of this Agreement and the Ancillary Agreements and the consummation of the transactions contemplated hereby and thereby, including (i) the Landlord Consent from Buckeye Industrial Properties LLC for the assignment of the Lease with respect to the Manufacturing Facility and (ii) the assignment consents from the counterparties to seven (7) of the twenty-three (23) Assigned Contracts that contain change-of-control or assignment consent provisions.