ASSET PURCHASE AGREEMENT
by and among
NEXFORD INDUSTRIAL HOLDINGS INC., a Delaware corporation, as Buyer,
PINNACLE METAL FABRICATORS LLC, an Indiana limited liability company, as the Company,
and
GERALD T. BRENNAN, SANDRA L. BRENNAN, and DEREK J. KOPP, as the Members
(and collectively with the Company, the "Sellers")
Dated as of September 5, 2023
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (this "Agreement") is entered into as of September 5, 2023, by and among:
NEXFORD INDUSTRIAL HOLDINGS INC., a corporation duly incorporated and existing under the laws of the State of Delaware, with its principal offices located at 4200 West Lake Shore Drive, Suite 800, Chicago, Illinois 60604 ("Buyer");
PINNACLE METAL FABRICATORS LLC, a limited liability company duly organized and existing under the laws of the State of Indiana, with its principal offices located at 1127 Industrial Parkway, Hammond, Indiana 46320 (the "Company");
GERALD T. BRENNAN, an individual residing in the State of Indiana, in his capacity as Managing Member of the Company, holding a sixty-five percent (65%) membership interest in the Company;
SANDRA L. BRENNAN, an individual residing in the State of Indiana, in her capacity as a Member of the Company, holding a twenty percent (20%) membership interest in the Company; and
DEREK J. KOPP, an individual residing in the State of Indiana, in his capacity as a Member of the Company, holding a fifteen percent (15%) membership interest in the Company, and serving as Vice President of Operations of the Company.
The Company and Gerald T. Brennan, Sandra L. Brennan, and Derek J. Kopp (each, a "Member" and collectively, the "Members") are collectively referred to herein as the "Sellers" and individually as a "Seller." The Members are collectively referred to herein as the "Members."
RECITALS
WHEREAS, the Company is engaged in the business of custom metal fabrication, including the design, engineering, fabrication, and installation of structural steel, aluminum, and stainless-steel components for commercial construction, infrastructure, and industrial original equipment manufacturer ("OEM") customers (the "Business");
WHEREAS, the Company was formed in the State of Indiana in 2006 and is registered with the Indiana Secretary of State under Entity ID 2006041500237, with Hoosier Registered Agents Inc., 201 South Capitol Avenue, Indianapolis, Indiana 46225, serving as its registered agent;
WHEREAS, the Members collectively own one hundred percent (100%) of the membership interests of the Company, with Gerald T. Brennan holding sixty-five percent (65%), Sandra L. Brennan holding twenty percent (20%), and Derek J. Kopp holding fifteen percent (15%);
WHEREAS, Bramblewood Capital Partners, LP, a Delaware limited partnership ("Sponsor"), holds approximately seventy-eight percent (78%) of the outstanding equity of Buyer;
WHEREAS, Buyer desires to purchase, acquire, and accept from the Company, and Sellers desire to sell, assign, transfer, convey, and deliver to Buyer, substantially all of the assets of the Company used in or relating to the Business, upon the terms and subject to the conditions set forth in this Agreement; and
WHEREAS, the parties desire to consummate the transactions contemplated by this Agreement and the other Transaction Documents (collectively, the "Transactions") on the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing recitals, the mutual covenants, agreements, representations, and warranties set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows:
ARTICLE I — DEFINITIONS
Section 1.01 — 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 2.01.
"Acquired Business EBITDA" means, for any Measurement Period, the earnings before interest, taxes, depreciation, and amortization of the Business, calculated in accordance with the methodology set forth in Exhibit C.
"Adjusted EBITDA" means, as used historically with respect to the Company, the Company's earnings before interest, taxes, depreciation, and amortization, adjusted for non-recurring and one-time items in a manner consistent with the Company's historical practices. For the last twelve-month ("LTM") period ending June 30, 2023, Adjusted EBITDA was approximately Three Million Seven Hundred Thousand Dollars ($3,700,000).
"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" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract, or otherwise.
"Agreement" means this Asset Purchase Agreement, together with all Exhibits, Schedules, and Disclosure Schedules attached hereto or delivered in connection herewith, as the same may be amended, modified, supplemented, or restated from time to time in accordance with Section 12.06.
"Assignment and Assumption Agreement" has the meaning set forth in Section 3.02(a)(iii).
"Assumed Contracts" has the meaning set forth in Section 2.01(f).
"Assumed Liabilities" has the meaning set forth in Section 2.03.
"Bill of Sale" has the meaning set forth in Section 3.02(a)(ii).
"Business" means the custom metal fabrication business conducted by the Company, including the design, engineering, fabrication, and installation of structural steel, aluminum, and stainless-steel components for commercial construction, infrastructure, and industrial OEM customers.
"Business Day" means any day that is not a Saturday, Sunday, or other day on which commercial banks in New York, New York or Chicago, Illinois are authorized or required by Law to remain closed.
"Buyer" means Nexford Industrial Holdings Inc., a Delaware corporation.
"Buyer Closing Certificate" has the meaning set forth in Section 3.02(b)(vii).
"Buyer Indemnified Parties" has the meaning set forth in Section 9.02(a).
"Calumet Steel Supply Agreement" means that certain Supply Agreement, dated as of March 15, 2023, between the Company and Calumet Steel Distributors Inc., as amended, modified, or supplemented from time to time prior to the date hereof.
"Cap" has the meaning set forth in Section 9.04(a).
"Claim Notice" has the meaning set forth in Section 9.05(a).
"Closing" has the meaning set forth in Section 3.01.
"Closing Cash Payment" means Twenty-Four Million Dollars ($24,000,000).
"Closing Date" has the meaning set forth in Section 3.01.
"Code" means the Internal Revenue Code of 1986, as amended, and the Treasury Regulations promulgated thereunder.
"Company" means Pinnacle Metal Fabricators LLC, an Indiana limited liability company.
"Confidential Information" means all non-public, confidential, or proprietary information of a party or its Affiliates, whether written, oral, electronic, or visual, including trade secrets, know-how, business plans, financial information, customer and supplier lists, pricing data, technical data, inventions, processes, designs, drawings, engineering information, and all other information that is designated as confidential or that, given the nature of the information or the circumstances surrounding its disclosure, reasonably should be treated as confidential. Confidential Information shall not include information that (a) is or becomes generally available to the public through no fault of the receiving party, (b) was in the receiving party's possession prior to disclosure by the disclosing party, (c) is independently developed by the receiving party without reference to the disclosing party's Confidential Information, or (d) is disclosed to the receiving party by a third party without breach of any obligation of confidentiality.
"Credit Agreement" means the Amended and Restated Senior Secured Revolving Credit Agreement, dated as of February 10, 2023 (as originally dated March 15, 2021), by and among Buyer, certain subsidiaries of Buyer, Greystone National Bank, N.A., as Administrative Agent, and the lenders party thereto, as the same may be amended, restated, supplemented, or otherwise modified from time to time.
"De Minimis Amount" means Twenty-Five Thousand Dollars ($25,000).
"Deductible" has the meaning set forth in Section 9.04(b).
"Disclosure Schedules" means the disclosure schedules delivered by Sellers to Buyer concurrently with the execution and delivery of this Agreement, as the same may be updated or supplemented in accordance with the terms of this Agreement.
"Earnout" has the meaning set forth in Section 2.06.
"Earnout Dispute Accountant" means Calder & Fitch LLP, an independent accounting firm located in Indianapolis, Indiana, or such other nationally or regionally recognized independent accounting firm as Buyer and the Seller Representative may mutually agree upon in writing.
"Earnout Payment" has the meaning set forth in Section 2.06(a).
"Earnout Period 1" means the twelve (12)-month period commencing on November 1, 2023 and ending on October 31, 2024.
"Earnout Period 2" means the twelve (12)-month period commencing on November 1, 2024 and ending on October 31, 2025.
"Earnout Statement" has the meaning set forth in Section 2.06(d).
"Encumbrance" or "Lien" means any mortgage, deed of trust, pledge, hypothecation, assignment, security interest, lien (statutory or otherwise), charge, claim, community property interest, equitable interest, option, warrant, right of first refusal, right of first offer, easement, servitude, restrictive covenant, encroachment, right of way, title defect, encumbrance, or restriction of any kind, whether voluntary or involuntary, contingent or absolute, including any restriction on use, voting, transfer, receipt of income, or exercise of any other attribute of ownership.
"Environmental Laws" means all federal, state, and local Laws relating to pollution, protection of the environment or natural resources, or the management, use, storage, treatment, transport, release, or disposal of Hazardous Materials, including the Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. Section 9601 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.), the Clean Air Act (42 U.S.C. Section 7401 et seq.), the Clean Water Act (33 U.S.C. Section 1251 et seq.), the Toxic Substances Control Act (15 U.S.C. Section 2601 et seq.), and their state and local counterparts, each as amended from time to time.
"Escrow Agent" means Commonwealth Escrow Services Inc., an escrow agent with offices at 140 Broadway, 30th Floor, New York, New York 10005, contact: Margaret H. Velasquez, Vice President.
"Escrow Agreement" has the meaning set forth in Section 2.05(b).
"Escrow Amount" means Three Million Dollars ($3,000,000).
"Escrow Release Date" means April 24, 2025, which is eighteen (18) months following the Closing Date.
"Excluded Assets" has the meaning set forth in Section 2.02.
"Excluded Liabilities" has the meaning set forth in Section 2.04.
"Exhibit C" means the Acquired Business EBITDA Methodology attached hereto as Exhibit C.
"Facility Lease" means the lease agreement for the premises located at 1127 Industrial Parkway, Hammond, Indiana 46320, by and between the Company, as tenant, and Lakeshore Realty Partners LLC, as landlord, as more particularly described in Schedule 4.08.
"Financial Statements" has the meaning set forth in Section 4.05.
"FIRPTA Certificate" has the meaning set forth in Section 3.02(a)(ix).
"Fraud" means actual and intentional fraud with respect to a representation or warranty set forth in this Agreement, involving a knowing and intentional misrepresentation of a material fact, made with the intent to deceive, and upon which the other party actually and justifiably relied, resulting in damages. For the avoidance of doubt, "Fraud" does not include constructive fraud, negligent misrepresentation, or any form of fraud based on recklessness or negligence.
"Fundamental Representations" means, collectively, the representations and warranties of Sellers set forth in Sections 4.01 (Organization and Good Standing), 4.02 (Authority; Enforceability), 4.04 (Title to Assets), and 4.21 (Brokers and Finders), and the representations and warranties of Buyer set forth in Sections 5.01 (Organization and Good Standing), 5.02 (Authority; Enforceability), and 5.05 (Brokers and Finders), and the representations and warranties of the Members set forth in Sections 6.01 (Authority; Enforceability) and 6.02 (Title to Membership Interests).
"GAAP" means generally accepted accounting principles in the United States of America, as in effect from time to time.
"Governmental Authority" means any federal, state, provincial, municipal, local, or foreign government or political subdivision thereof, or any agency, bureau, board, commission, department, instrumentality, or authority thereof, or any court, tribunal, arbitrator, or other judicial body, or any self-regulatory organization.
"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 products, asbestos and asbestos-containing materials, polychlorinated biphenyls, per- and polyfluoroalkyl substances, lead-based paint, and mold.
"Indemnified Party" means a Person entitled to indemnification under Article IX.
"Indemnifying Party" means a Person obligated to provide indemnification under Article IX.
"intellectual Property" means all intellectual property and proprietary rights of any kind, including (a) patents, patent applications, patent disclosures, and all related continuations, continuations-in-part, divisionals, reissues, re-examinations, substitutions, and extensions thereof; (b) trademarks, service marks, trade names, brand names, logos, trade dress, domain names, social media accounts, and all goodwill associated therewith; (c) copyrights and copyrightable works; (d) trade secrets, know-how, inventions (whether patentable or not), processes, techniques, methods, formulae, algorithms, models, and technical data; (e) computer software, databases, and documentation; and (f) all registrations, applications for registration, and renewals of any of the foregoing, including the "Pinnacle" trade name and all associated goodwill.
"Ironclad MSA" means the Master Supply Agreement, dated as of June 15, 2022, between the Company and Ironclad Bridge & Infrastructure Co., as amended, modified, or supplemented from time to time prior to the date hereof.
"Knowledge" means (a) with respect to any Seller, the actual knowledge, after reasonable inquiry, of Gerald T. Brennan, Sandra L. Brennan, and Derek J. Kopp, and (b) with respect to Buyer, the actual knowledge, after reasonable inquiry, of Marcus R. Haverford and Philip M. Stanhope.
"Law" means any federal, state, provincial, municipal, local, or foreign statute, law, ordinance, regulation, rule, code, executive order, injunction, judgment, decree, or agency requirement of any Governmental Authority.
"Lender Consent" means the consent of Greystone National Bank, N.A., in its capacity as Administrative Agent under the Credit Agreement, to the consummation of the Transactions as contemplated by Section 7.04 of the Credit Agreement.
"Losses" means all losses, damages, liabilities, deficiencies, judgments, interest, awards, penalties, fines, assessments, costs, and expenses, including reasonable and documented attorneys' fees and expenses, costs of investigation, and costs of enforcing indemnification rights.
"LTM" means the last twelve months.
"Material Adverse Effect" means any event, occurrence, fact, condition, change, 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 Company and the Business, taken as a whole, or (b) the ability of any Seller to consummate the Transactions; provided, however, that none of the following, individually or in the aggregate, shall be deemed to constitute, or shall be taken into account in determining whether there has been, a Material Adverse Effect: (i) changes in general economic, financial, credit, or capital market conditions; (ii) changes in conditions generally affecting the metal fabrication industry or the commercial construction and infrastructure sectors; (iii) changes in applicable Law or GAAP (or interpretations thereof); (iv) acts of war, armed hostilities, sabotage, terrorism, or military action, or any escalation or worsening thereof; (v) epidemics, pandemics (including COVID-19 and its variants), or other public health emergencies; (vi) natural disasters, weather events, or acts of God; (vii) the announcement or pendency of this Agreement or the Transactions (including the impact thereof on relationships with customers, suppliers, employees, or Governmental Authorities); or (viii) any action taken by any Seller at the express written request of Buyer; except, in each case of clauses (i) through (vi), to the extent such event, occurrence, fact, condition, change, or effect disproportionately affects the Company and the Business relative to other companies operating in the metal fabrication industry.
"Material Contracts" has the meaning set forth in Section 4.10.
"Measurement Period" means each of Earnout Period 1 and Earnout Period 2.
"Members" means Gerald T. Brennan, Sandra L. Brennan, and Derek J. Kopp, collectively, and "Member" means any one of them.
"Most Recent Financial Statements" has the meaning set forth in Section 4.05.
"Net Cash to Seller at Closing" means the Closing Cash Payment minus the Escrow Amount, which is Twenty-One Million Dollars ($21,000,000) (i.e., $24,000,000 minus $3,000,000).
"Non-Competition and Non-Solicitation Agreement" means the Non-Competition and Non-Solicitation Agreement to be executed and delivered by each Member at the Closing, substantially in the form attached hereto as Exhibit F.
"Order" means any order, writ, judgment, injunction, decree, stipulation, determination, award, decision, or ruling of any Governmental Authority.
"Ordinary Course of Business" means the ordinary course of business consistent with the Company's past custom and practice (including with respect to quantity, quality, and frequency), and in compliance with all applicable Laws.
"Outside Date" has the meaning set forth in Section 10.01(b).
"Permitted Liens" means (a) Liens for Taxes not yet due and payable or being contested in good faith by appropriate proceedings (and for which adequate reserves have been established in accordance with GAAP); (b) statutory Liens of mechanics, materialmen, carriers, landlords, warehousemen, and other similar Persons arising in the Ordinary Course of Business for amounts not yet due and payable or being contested in good faith; (c) Liens arising under or in connection with workers' compensation, unemployment insurance, or similar legislation; (d) zoning, building, entitlement, and other land use regulations imposed by Governmental Authorities having jurisdiction over leased real property that are not violated by the current use of such real property; and (e) minor defects or irregularities in title, easements, rights of way, and restrictions that do not, individually or in the aggregate, materially impair the use or value of the property to which they relate.
"Person" means any individual, sole proprietorship, partnership, limited partnership, limited liability partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority, or any other entity of any kind.
"Phase I ESA" means the Phase I Environmental Site Assessment of the premises located at 1127 Industrial Parkway, Hammond, Indiana 46320, prepared by Clearpath Environmental Advisors Inc. (project manager: Elena M. Rivas), dated July 18, 2023.
"Purchase Price" has the meaning set forth in Section 2.05(a).
"Purchase Price Allocation" has the meaning set forth in Section 2.07.
"R&W Insurance Policy" means the representations and warranties insurance policy issued by Sentinel Specialty Insurance Company (Policy No. SSI-RW-2023-04718), with a policy limit of Nine Million Dollars ($9,000,000) and a retention of Seven Hundred Fifty Thousand Dollars ($750,000).
"Seller Closing Certificate" has the meaning set forth in Section 3.02(a)(vii).
"Seller Indemnified Parties" has the meaning set forth in Section 9.03.
"Seller Representative" means Gerald T. Brennan, or any successor appointed in accordance with Section 11.04.
"Sellers" means the Company and the Members, collectively, and "Seller" means any one of them.
"Sponsor" means Bramblewood Capital Partners, LP, a Delaware limited partnership.
"Tax" or "Taxes" means 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, information return, or statement relating to Taxes, including any schedule or attachment thereto and any amendment thereof.
"Third Party Claim" has the meaning set forth in Section 9.05(b).
"Transaction Documents" means this Agreement, the Bill of Sale, the Assignment and Assumption Agreement, the Escrow Agreement, the Transition Services Agreement, the Non-Competition and Non-Solicitation Agreement, and all other agreements, instruments, certificates, and documents executed and delivered in connection with the Transactions.
"Transactions" means the transactions contemplated by this Agreement and the other Transaction Documents.
"Transition Services Agreement" or "TSA" means the Transition Services Agreement to be entered into at the Closing between Buyer and Gerald T. Brennan, substantially in the form attached hereto as Exhibit E.
"Treasury Regulations" means the Treasury Regulations promulgated under the Code.
Section 1.02 — Interpretation
Unless the context of this Agreement clearly requires otherwise, (a) words importing the masculine gender shall include the feminine and neuter genders, and vice versa; (b) words importing the singular shall include the plural, and vice versa; (c) the words "include," "includes," and "including" shall be deemed to be followed by the words "without limitation"; (d) the words "herein," "hereof," "hereunder," "hereby," and words of similar import shall be deemed to refer to this Agreement as a whole and not to any particular provision hereof; (e) references to "Section," "Article," "Exhibit," or "Schedule" are references to Sections, Articles, Exhibits, or Schedules of or to this Agreement, unless otherwise stated; (f) references to any Law shall be deemed to refer to such Law as amended, supplemented, or otherwise modified from time to time, including all rules and regulations promulgated thereunder; (g) references to any contract or agreement shall be deemed to refer to such contract or agreement as amended, supplemented, or otherwise modified from time to time in accordance with its terms; (h) all references to "dollars" or "$" shall mean lawful money of the United States of America; (i) headings and captions are inserted for convenience of reference only and shall not be used in interpreting or construing this Agreement; (j) whenever the last day for the exercise of any right or the discharge of any duty hereunder falls on a day other than a Business Day, the party having such right or duty may exercise that right or discharge that duty on the next succeeding Business Day; and (k) the Disclosure Schedules and Exhibits referred to herein shall be construed with, and as an integral part of, this Agreement to the same extent as if they were set forth verbatim herein.
ARTICLE II — PURCHASE AND SALE
Section 2.01 — Purchase and Sale of Acquired Assets
Upon the terms and subject to the conditions of this Agreement, at the Closing, the Company shall sell, assign, transfer, convey, and deliver to Buyer, and Buyer shall purchase, acquire, and accept from the Company, free and clear of all Encumbrances other than Permitted Liens, all of the Company's right, title, and interest in and to the following assets, properties, and rights of every kind and nature, whether tangible or intangible, real or personal, wherever located (collectively, the "Acquired Assets"):
(a) Tangible Personal Property. All machinery, equipment, tools, molds, dies, jigs, fixtures, furniture, furnishings, office equipment, computer hardware, vehicles, and other tangible personal property owned by the Company and used in or held for use in the Business, including without limitation fourteen (14) CNC plasma and laser cutting machines, two (2) overhead bridge cranes (each with a capacity of not less than fifteen (15) tons), eight (8) flatbed trucks, three (3) forklifts, and all other items of tangible personal property listed on Schedule 2.01(a).
(b) Inventory. All raw materials (including structural steel, aluminum sheet and plate, stainless-steel alloys, and fasteners), work-in-process, finished goods, packaging materials, maintenance supplies, spare parts, and other inventory of the Company, wherever located, whether at the premises located at 1127 Industrial Parkway, Hammond, Indiana 46320, at customer sites, in transit, or held on consignment by third parties.
(c) Accounts Receivable. All trade accounts receivable, notes receivable, and other receivables arising from or related to the Business, whether billed or unbilled, together with all security held by the Company with respect thereto and all related rights of offset and recoupment.
(d) intellectual Property. All intellectual Property owned by, licensed to, or used by the Company in the conduct of the Business, including the "Pinnacle" trade name, the "Pinnacle Metal Fabricators" trade name, and all associated logos, domain names (including www.pinnaclemetal.com), and goodwill, together with all rights to recover for past infringement thereof.
(e) Customer Contracts and Backlog. All customer contracts, purchase orders, work orders, open orders, and all other agreements with customers of the Business, including the existing customer backlog of approximately Seven Million Two Hundred Thousand Dollars ($7,200,000) in open orders as of the date hereof.
(f) Assumed Contracts. All contracts, agreements, leases, licenses, commitments, and arrangements listed on Schedule 2.01(f) (collectively, the "Assumed Contracts"), including the following:
(i) the Facility Lease with Lakeshore Realty Partners LLC for the premises located at 1127 Industrial Parkway, Hammond, Indiana 46320 (approximately 48,000 square feet of fabrication, office, and warehouse space; 10-year term expiring December 31, 2028; base rent of Sixteen Dollars and Fifty Cents ($16.50) per square foot per annum, totaling Seven Hundred Ninety-Two Thousand Dollars ($792,000) per year (Sixty-Six Thousand Dollars ($66,000) per month), on a triple-net (NNN) basis);
(ii) the Ironclad MSA with Ironclad Bridge & Infrastructure Co. (3-year term through June 2025, representing approximately twenty-eight percent (28%) of the Company's LTM revenue; consent to assignment required under Section 14.2 of the Ironclad MSA); and
(iii) the Calumet Steel Supply Agreement with Calumet Steel Distributors Inc. (annual volume commitment of approximately Four Million Eight Hundred Thousand Dollars ($4,800,000); 2-year term through March 2025).
(g) Permits and Licenses. To the extent transferable under applicable Law, all permits, licenses, certifications, authorizations, approvals, registrations, franchises, and similar rights issued by any Governmental Authority to the Company in connection with the Business.
(h) Books and Records. All books, records, files, papers, data (including electronic data), correspondence, and documents relating to the Business, the Acquired Assets, or the Assumed Liabilities, including all customer lists, supplier lists, pricing records, sales and marketing materials, engineering drawings, fabrication specifications, quality control records, personnel records (to the extent permitted by Law), and financial records.
(i) Prepaid Expenses and Deposits. All prepaid expenses, advance payments, prepaid items, security deposits, and other deposits of the Company relating to the Acquired Assets, the Assumed Contracts, or the Business, including any deposit held under the Facility Lease.
(j) Goodwill. All goodwill and going-concern value of the Business, together with the right of Buyer to represent itself as the successor to the Business.
(k) Claims and Causes of Action. All rights, claims, credits, causes of action, choses in action, rights of recovery, rights of set-off, and rights of recoupment of the Company arising out of or relating to the Acquired Assets or the Assumed Liabilities, including any rights under warranties, representations, or guarantees made by suppliers, manufacturers, or contractors of the Company.
(l) Other Assets. All other assets, properties, and rights of every kind and description, whether tangible or intangible, real or personal, that are used in, held for use in, or related to the Business, other than the Excluded Assets.
Section 2.02 — Excluded Assets
Notwithstanding anything to the contrary in Section 2.01, the following assets of the Company (collectively, the "Excluded Assets") are excluded from the Acquired Assets and shall be retained by the Company and/or the Members, as applicable:
(a) All cash and cash equivalents of the Company, including all bank accounts and all funds held in such accounts, as of the Closing;
(b) All distributions receivable by any Member from the Company that have been declared but not yet paid as of the Closing;
(c) All rights to any refunds of Taxes paid by or on behalf of the Company attributable to taxable periods (or portions thereof) ending on or prior to the Closing Date;
(d) All personal vehicles titled in the name of any Member, including without limitation the personal automobiles and recreational vehicles of Gerald T. Brennan, Sandra L. Brennan, and Derek J. Kopp;
(e) The organizational documents of the Company, including the Certificate of Formation, the Operating Agreement, and any amendments thereto, together with the Company's minute books, membership interest records, and entity-level tax identification records;
(f) All rights of Sellers under this Agreement and the other Transaction Documents; and
(g) Any other assets specifically listed on Schedule 2.02.
Section 2.03 — Assumed Liabilities
At the Closing, Buyer shall assume and agree to pay, perform, and discharge when due the following liabilities and obligations of the Company (collectively, the "Assumed Liabilities"), and no others:
(a) Trade Payables. All trade accounts payable of the Company incurred in the Ordinary Course of Business and outstanding as of the Closing Date, estimated at approximately One Million One Hundred Thousand Dollars ($1,100,000) at the Closing;
(b) Accrued Employee Vacation. All accrued and unpaid employee vacation, paid time off, and similar leave obligations owed to the employees of the Company who are hired by Buyer following the Closing, estimated at approximately One Hundred Eighty-Six Thousand Dollars ($186,000) at the Closing;
(c) Post-Closing Contract Obligations. All obligations under the Assumed Contracts arising and required to be performed on or after the Closing Date, to the extent that such obligations do not arise from or relate to any breach, default, or violation by the Company occurring prior to the Closing; and
(d) Scheduled Liabilities. Any other liabilities and obligations specifically identified on Schedule 2.03.
Section 2.04 — Excluded Liabilities
All liabilities and obligations of the Company other than the Assumed Liabilities (collectively, the "Excluded Liabilities") shall be retained by and remain the sole responsibility and obligation of the Company and the Members. Without limiting the generality of the foregoing, the Excluded Liabilities shall include the following:
(a) All liabilities arising from, relating to, or otherwise in connection with any Excluded Asset;
(b) All liabilities for Taxes of the Company or any Member attributable to any taxable period (or portion thereof) ending on or prior to the Closing Date, including all income, franchise, employment, payroll, sales, use, and other Taxes;
(c) All liabilities relating to current or former employees of the Company arising from facts, events, or circumstances occurring prior to the Closing Date, including all liabilities under any employee benefit plan, any employment agreement, or any workers' compensation claim, but excluding the Assumed Liabilities described in Sections 2.03(a) and 2.03(b);
(d) All liabilities arising out of or relating to any violation of, or any obligation or duty under, Environmental Laws attributable to facts, events, conditions, or circumstances existing or occurring prior to the Closing Date, regardless of when discovered or asserted;
(e) All indebtedness for borrowed money of the Company, including principal, interest, fees, penalties, premiums, and any other amounts payable in connection therewith;
(f) All liabilities arising from any breach, default, or violation by the Company under any Assumed Contract occurring prior to the Closing Date;
(g) All transaction expenses incurred by any Seller in connection with the negotiation, preparation, execution, and consummation of this Agreement and the Transactions, including fees and expenses of legal counsel, accountants, financial advisors, brokers, and other representatives of Sellers; and
(h) All other liabilities and obligations of the Company not specifically assumed by Buyer as Assumed Liabilities.
Section 2.05 — Purchase Price
(a) Total Purchase Price. The aggregate consideration for the Acquired Assets (the "Purchase Price") shall be Thirty Million Dollars ($30,000,000), consisting of: (i) the Closing Cash Payment of Twenty-Four Million Dollars ($24,000,000), payable in cash at the Closing in accordance with this Section 2.05; and (ii) the earnout payments of up to Six Million Dollars ($6,000,000) in the aggregate, payable in accordance with, and subject to the terms and conditions of, Section 2.06. The Purchase Price shall be subject to adjustment solely as set forth in this Article II.
(b) Escrow. At the Closing, Buyer shall deposit the Escrow Amount of Three Million Dollars ($3,000,000) from the Closing Cash Payment with Commonwealth Escrow Services Inc. (the "Escrow Agent"), to be held and distributed in accordance with the terms and conditions of the escrow agreement in the form attached hereto as Exhibit A (the "Escrow Agreement"). The Escrow Amount shall serve as security for the indemnification obligations of Sellers under Article IX of this Agreement. The Escrow Amount shall be held in an interest-bearing account, and any interest earned thereon shall be distributed to the party entitled to receive the underlying Escrow Amount. On the Escrow Release Date (April 24, 2025), the Escrow Agent shall distribute to the Seller Representative any portion of the Escrow Amount (together with accrued interest thereon) that is not then subject to a pending and unresolved indemnification claim, in accordance with the terms of the Escrow Agreement.
(c) Payment at Closing. At the Closing, Buyer shall pay the Net Cash to Seller at Closing in the amount of Twenty-One Million Dollars ($21,000,000) (being the Closing Cash Payment of $24,000,000 minus the Escrow Amount of $3,000,000) by wire transfer of immediately available funds to the bank accounts designated by the Seller Representative in the funds flow memorandum to be delivered to Buyer not later than two (2) Business Days prior to the Closing Date. The Net Cash to Seller at Closing shall be allocated among the Members in accordance with their respective membership interests as follows:
(i) Gerald T. Brennan (65%): Thirteen Million Six Hundred Fifty Thousand Dollars ($13,650,000);
(ii) Sandra L. Brennan (20%): Four Million Two Hundred Thousand Dollars ($4,200,000); and
(iii) Derek J. Kopp (15%): Three Million One Hundred Fifty Thousand Dollars ($3,150,000).
The Escrow Amount of Three Million Dollars ($3,000,000) shall be wire transferred by Buyer simultaneously with the payment of the Net Cash to Seller at Closing to the escrow account designated by the Escrow Agent in the Escrow Agreement.
Section 2.06 — Earnout
(a) Earnout Payments. In addition to the Closing Cash Payment, Buyer shall pay to Sellers contingent earnout payments of up to an aggregate of Six Million Dollars ($6,000,000) (each, an "Earnout Payment" and collectively, the "Earnout"), based upon the Acquired Business EBITDA of the Business during each Measurement Period, as follows:
(i) Earnout Period 1. For the twelve (12)-month period ending October 31, 2024 ("Earnout Period 1"):
(A) If Acquired Business EBITDA for Earnout Period 1 equals or exceeds Four Million Two Hundred Thousand Dollars ($4,200,000), the Earnout Payment shall be Three Million Dollars ($3,000,000);
(B) If Acquired Business EBITDA for Earnout Period 1 is equal to or greater than Three Million Seven Hundred Thousand Dollars ($3,700,000) but less than Four Million Two Hundred Thousand Dollars ($4,200,000), the Earnout Payment shall be calculated on a linear pro-rata basis as follows: $3,000,000 multiplied by ((Actual EBITDA minus $3,700,000) divided by ($4,200,000 minus $3,700,000)); and
(C) If Acquired Business EBITDA for Earnout Period 1 is less than Three Million Seven Hundred Thousand Dollars ($3,700,000), no Earnout Payment shall be due or payable for Earnout Period 1.
(ii) Earnout Period 2. For the twelve (12)-month period ending October 31, 2025 ("Earnout Period 2"):
(A) If Acquired Business EBITDA for Earnout Period 2 equals or exceeds Four Million Eight Hundred Thousand Dollars ($4,800,000), the Earnout Payment shall be Three Million Dollars ($3,000,000);
(B) If Acquired Business EBITDA for Earnout Period 2 is equal to or greater than Four Million Two Hundred Thousand Dollars ($4,200,000) but less than Four Million Eight Hundred Thousand Dollars ($4,800,000), the Earnout Payment shall be calculated on a linear pro-rata basis as follows: $3,000,000 multiplied by ((Actual EBITDA minus $4,200,000) divided by ($4,800,000 minus $4,200,000)); and
(C) If Acquired Business EBITDA for Earnout Period 2 is less than Four Million Two Hundred Thousand Dollars ($4,200,000), no Earnout Payment shall be due or payable for Earnout Period 2.
(b) Acquired Business EBITDA. "Acquired Business EBITDA" shall be calculated in accordance with the methodology set forth in Exhibit C attached hereto (the "Acquired Business EBITDA Methodology"), applied consistently with the Company's historical accounting practices as in effect immediately prior to the Closing, and excluding any corporate allocations, management fees, or other intercompany charges imposed by Buyer or any of its Affiliates. In the event of any conflict between the terms of this Section 2.06 and the terms of Exhibit C, the terms of Exhibit C shall control.
(c) Payment Timing. Each Earnout Payment, if any, shall be paid by Buyer to the Seller Representative within ninety (90) days after the end of the applicable Measurement Period (i.e., the Earnout Period 1 payment, if any, shall be due on or before January 29, 2025, and the Earnout Period 2 payment, if any, shall be due on or before January 29, 2026), by wire transfer of immediately available funds to the bank accounts designated by the Seller Representative. In no event shall interest accrue on any Earnout Payment during the period between the end of a Measurement Period and the due date for payment thereof.
(d) Earnout Statement. Within sixty (60) days following the end of each Measurement Period, Buyer shall prepare and deliver to the Seller Representative a written statement (each, an "Earnout Statement") setting forth in reasonable detail Buyer's good faith calculation of Acquired Business EBITDA for such Measurement Period, including a description of each line item, adjustment, and methodology used in the calculation, together with reasonable supporting documentation, including management-prepared financial statements for the applicable Measurement Period and working papers supporting each adjustment.
(e) Dispute Resolution. If the Seller Representative objects to the Earnout Statement or any element thereof, the Seller Representative shall deliver a written notice of objection (an "Earnout Objection Notice") to Buyer within thirty (30) days after receipt of the Earnout Statement, specifying in reasonable detail the items in dispute and the Seller Representative's proposed calculation of Acquired Business EBITDA. If the Seller Representative does not deliver an Earnout Objection Notice within such thirty (30)-day period, the Earnout Statement as delivered by Buyer shall be deemed final and binding. If the Seller Representative timely delivers an Earnout Objection Notice, the parties shall negotiate in good faith for a period of thirty (30) days following Buyer's receipt thereof to resolve any disputed items. If the parties are unable to reach agreement within such thirty (30)-day negotiation period, either party may submit the unresolved disputed items to the Earnout Dispute Accountant (Calder & Fitch LLP, Indianapolis, Indiana) for final determination. The Earnout Dispute Accountant shall act as an expert (and not as an arbitrator) and shall render a written determination of the disputed items within forty-five (45) days of submission, which determination shall be final and binding on the parties, absent manifest error. The Earnout Dispute Accountant shall consider only those items remaining in dispute and shall not assign a value to any disputed item that is greater than the highest value claimed by either party or less than the lowest value claimed by either party. The fees and expenses of the Earnout Dispute Accountant shall be borne by the non-prevailing party (or, if neither party fully prevails, allocated proportionally between the parties based upon the relative difference between each party's proposed calculation and the final determination of the Earnout Dispute Accountant). During the pendency of any dispute, Buyer shall grant the Seller Representative and its authorized representatives reasonable access to the books and records of the Business to the extent relevant to the calculation of Acquired Business EBITDA.
(f) Operating Covenants. During each Measurement Period, Buyer agrees to operate the Business (or cause the Business to be operated) in good faith and in a manner consistent with the Company's past practice. Buyer shall not be obligated to operate the Business in a manner that maximizes Earnout Payments, but Buyer shall not take any action or fail to take any action with the primary purpose of reducing or avoiding Earnout Payments. Without limiting the generality of the foregoing, Buyer covenants and agrees that, during each Measurement Period, Buyer shall:
(i) maintain the Business as a separately identifiable reporting unit for purposes of calculating Acquired Business EBITDA in accordance with Exhibit C;
(ii) provide the Business with working capital reasonably necessary to operate the Business in a manner consistent with historical levels and past practices;
(iii) not divert or redirect material revenues, customers, contracts, or employees from the Business to any other division, subsidiary, or Affiliate of Buyer with the primary purpose of reducing or avoiding Earnout Payments;
(iv) not terminate, materially amend, or fail to renew any material customer contract or supplier contract of the Business with the primary purpose of reducing or avoiding Earnout Payments; and
(v) not impose, charge, or allocate any corporate overhead, management fee, shared services charge, or other intercompany charge to the Business for purposes of calculating Acquired Business EBITDA, except to the extent expressly provided in Exhibit C.
(g) Allocation of Earnout Payments. Each Earnout Payment shall be allocated among the Members in the same proportions as the Closing Cash Payment: sixty-five percent (65%) to Gerald T. Brennan, twenty percent (20%) to Sandra L. Brennan, and fifteen percent (15%) to Derek J. Kopp.
Section 2.07 — Purchase Price Allocation
Buyer and Sellers agree to allocate the Purchase Price (including the Assumed Liabilities, the estimated fair value of the Earnout contingent consideration at the Closing, and any other items treated as consideration for United States federal income tax purposes) among the Acquired Assets in accordance with Section 1060 of the Code and the Treasury Regulations promulgated thereunder (the "Purchase Price Allocation"). The Purchase Price Allocation shall be prepared by Buyer and delivered to the Seller Representative within one hundred twenty (120) days after the Closing Date (i.e., by February 21, 2024). The preliminary allocation of the Purchase Price among the classes of Acquired Assets is as follows:
The foregoing preliminary allocation includes the estimated fair value of the Earnout contingent consideration as of the Closing and is subject to finalization and adjustment by Buyer following the Closing in accordance with applicable Tax Law and regulations. If the Seller Representative disagrees with the Purchase Price Allocation as finally delivered by Buyer, the Seller Representative shall notify Buyer in writing within thirty (30) days of receipt, specifying in reasonable detail the items in dispute. The parties shall negotiate in good faith to resolve any dispute. If the parties are unable to reach agreement within thirty (30) days following Buyer's receipt of such notice, the dispute shall be submitted to the Earnout Dispute Accountant for final and binding resolution, the fees and expenses of which shall be borne as set forth in Section 2.06(e). Each party shall file all Tax Returns (including IRS Form 8594 and any supplemental filings required upon the payment of any Earnout Payment) consistently with the final Purchase Price Allocation, and shall not take any Tax position that is inconsistent therewith, unless otherwise required by a final determination of a Governmental Authority.
Section 2.08 — Withholding
Buyer shall be entitled to deduct and withhold from any amounts payable under this Agreement such amounts as are required to be deducted and withheld under the Code or any applicable provision of federal, state, local, or foreign Tax Law. To the extent that amounts are so withheld and timely remitted to the appropriate 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. Buyer shall use commercially reasonable efforts to provide the Seller Representative with advance written notice of any anticipated withholding (other than any withholding in connection with employee compensation) and shall cooperate with Sellers to minimize or eliminate any such withholding to the extent permitted by applicable Law.
ARTICLE III — CLOSING
Section 3.01 — Closing Date
The closing of the Transactions contemplated by this Agreement (the "Closing") shall take place remotely via the electronic exchange of executed signature pages and other deliverables (by email in portable document format or other electronic means mutually agreed upon by the parties) on a date that is no later than three (3) Business Days following the satisfaction or waiver (to the extent permitted by applicable Law) of all of the conditions set forth in Article VIII (other than those conditions that by their nature are to be satisfied by actions taken at the Closing, but subject to the satisfaction or waiver of such conditions at the Closing), unless the parties mutually agree in writing to a different date or method of closing. The target date for the Closing is October 20, 2023. The date on which the Closing actually occurs is referred to herein as the "Closing Date." The Closing shall be deemed to have occurred at 12:01 a.m., Central Time, on the Closing Date for accounting and operational purposes, such that all economic benefits and burdens of ownership of the Acquired Assets shall be for the account of Buyer from and after such time.
Section 3.02 — Closing Deliverables
(a) Sellers' Deliverables at Closing. At the Closing, Sellers shall deliver or cause to be delivered to Buyer the following documents, instruments, and agreements, each in form and substance reasonably satisfactory to Buyer:
(i) This Agreement, duly executed by the Company (by Gerald T. Brennan, as Managing Member) and by each Member individually;
(ii) A Bill of Sale, substantially in the form of Exhibit B (the "Bill of Sale"), duly executed by the Company, conveying to Buyer all of the Company's right, title, and interest in and to the tangible personal property included in the Acquired Assets;