EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
between
WONDER TOOL, INC.
and
CYCLO TOOLMAKERS, INC.
Dated as of January 1, 2003
TABLE OF CONTENTS
INTRODUCTORY PARAGRAPH
PREAMBLE
ARTICLE I
DEFINITIONS
1.1. Definitions
ARTICLE II
SALE AND PURCHASE OF THE ASSETS
2.1. Sale and Purchase of the Assets
2.2. Conveyance of Assets
2.3. Purchase Price and Payment
2.4. Purchase Price Adjustment
2.5. Escrow of Funds
2.6 Disagreement Regarding Assumed Current Accounts Payable, Assumed
Current Accounts Receivable, and Inventory
2.7. Closing
2.8 Purchase Price Allocation
ARTICLE III
SELLER'S REPRESENTATIONS AND WARRANTIES
3.1. Representations and Warranties of Seller
3.2. Corporate Existence
3.3. Authorization
3.4. Noncontravention
3.5. Broker Fees
3.6. Title to Tangible Assets
3.7. Litigation
a) Legal Compliance
b) Income Tax Matters
c) Benefit Plans
3.11. Permits
3.12. Financial Statements
3.13 No Adverse Change
3.14 Intellectual Property
3.15. Contracts
3.16. Environmental, Health, and Safety
3.17. Accounts Receivable
a) Adequacy of Assets for Business
b) Underwriter's Laboratories if Required for Products Liability
Insurability
c) No Other Agreement
d) Machinery
e) Disclaims of Other Representations and Warranties
f) Disclosure
2
ARTICLE IV
BUYER'S REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of Buyer
4.2. Corporate Existence
4.3. Authorization
4.4. Noncontravention
4.5. Broker Fees
a) Solvency of Buyer
b) Disclosure
ARTICLE V
CERTAIN COVENANTS
5.1. Full Access and Information; Confidentiality
5.2. Regulatory Filings
5.3. Noncompetition Agreement
5.4. Nondisclosure
5.5. Post-Closing Consulting Services
a) Conduct of Business
b) Lease
c) Cost of Motors
d) Assignment of Contracts
e) Intellectual Property Assignments and Acknowledgement
f) Payment of Assumed Liabilities
g) Financial Statements
h) Deletion of Assets
i) Post-Closing Covenant
ARTICLE VI
REMEDIES FOR BREACH OF THIS AGREEMENT
a) Survival of Representations and Warranties
b) Breach of Seller's Warranties
c) Limitations on Seller's Indemnification
d) Right of Offset
e) Breach of Buyer's Warranties
f) Limitations on Buyer's Indemnification
g) Third Parties
h) Determination of Adverse Consequences
i) Exclusive Remedy
j) Product Warranty Claims
3
ARTICLE VII
MISCELLANEOUS
7.1 Expenses
7.2 Assignment
7.3 Amendment and Modification; Waivers
7.4. Sales and Transfer Taxes
7.5. Tax and Financial Cooperation
7.6. Entire Agreement
7.7. Severability
7.8. Counterparts
7.9. Headings
7.10. Notices
7.11. Governing Law
7.12. Construction
7.13. Incorporation of Exhibits and Schedules
a) Time is of the Essence.
b) Facsimile Signature
4
ASSET PURCHASE AGREEMENT
------------------------
This Asset Purchase Agreement is entered into effective as of 12:01 a.m.
(MST) on January 1, 2003, between WONDER TOOL, INC., a Colorado corporation
("WTI" and the "Seller") and CYCLO TOOLMAKERS, INC., a Colorado corporation (the
"Buyer"). The Buyer and Seller are referred to collectively herein as the
Parties.
RECITALS
--------
A. The Buyer is interested in acquiring substantially all of the operating
assets of WTI, including "Elkee", "Extract-All" and its orbital and pole
polishing operations and associated accessories (hereinafter collectively
referred to as the "Orbital Polishing Operations").
B. Seller is interested in selling the Purchased Assets to Buyer.
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
ARTICLE I
DEFINITIONS
-----------
1.1 Definitions. The following words and terms as used in this Agreement
shall have the following meanings:
"Adverse Consequences" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, demands, injunctions, judgments, orders,
decrees, rulings, damages, penalties, fines, costs, reasonable amounts paid in
settlement, liabilities, obligations, Taxes for which Buyer will be liable
(excluding Taxes attributable to this transaction), liens other than permitted
liens that encumber the Assets, losses, expenses and fees, including court costs
and reasonable attorney's fees and expenses.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Agreement" means this Agreement, all Exhibits and Schedules hereto, and
all amendments made hereto and thereto by written agreement among the Parties.
"Asian American shall mean Asian-American Trading & Investment, LLC.
"Assumed Current Accounts Payable" has the meaning set forth in Section
2.3(d).
"Assumed Current Accounts Receivable" has the meaning set forth in Section
2.3(e).
"Benefit Plans" has the meaning specified in Section 3.10.
5
"Business" means the Orbital Polishing Operations.
"Business Day" means a day other than a Saturday, Sunday or day on which
commercial banks in Colorado are generally closed for business.
"Buyer" has the meaning set forth in the introductory paragraph.
"Closing and Closing Date" have the meanings specified in Section 2.6.
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidential Information" has the meaning specified in Section 5.5.
"Contract Assignment" has the meaning specified in Section 4.7.
"Contracts" has the meaning specified in Section 3.15.
"Environmental Laws" means any federal, state and local statutes, common
law, regulations, ordinances, requirements, orders and other rules whose purpose
is the protection of public health, public welfare, worker safety or the
environment (including, without limitation, protection of non-human forms of
life, land, water, groundwater and air). The term Environmental Laws includes,
but is not limited to, the following federal statutes: the Comprehensive
Environmental Response, Compensation, and Liability Act ("CERCLA"), 42 U.S.C.
xx.xx. 9601, et seq.; the Clean Air Act, 42 U.S.C. xx.xx. 7401, et seq.; the
Solid Waste Disposal Act, known as the Resource Conservation and Recovery Act,
42 U.S.C. xx.xx. 1251, et seq.; the Toxic Substances Control Act, 15 U.S.C.
xx.xx. 2601, et seq.; the Safe Drinking Water Act, 42 U.S.C. xx.xx. 3007, et
seq.; the Emergency Planning and Community Right-to-Know Act, 42 U.S.C. xx.xx.
11001, et seq.; the National Environmental Safety and Health Act ("OSHA"), 29
U.S.C. xx.xx. 651, et seq.; and the Hazardous Materials Transportation Act, 49
App. U.S.C. xx.xx. 1801, et seq. It also includes, but is not limited to, state
or local counterparts to these federal laws. The parties intend that this term
be defined and construed broadly.
"ERISA" has shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"Escrow Agent" has the meaning specified in Section 2.5(a).
"Escrowed Funds" has the meaning specified in Section 2.5(a).
"Escrow Period" has the meaning specified in Section 2.5(a).
"GAAP" means the United States generally accepted accounting principles as
in effect from time to time, consistently applied.
"Glas-Aire" shall mean Glas-Aire Industries Group, Ltd.
"Governmental Authorizations" has the meaning specified in Section 3.8.
6
"Income Tax or Income Taxes" means all federal, state or local income taxes
(inclusive of any and all interest and penalties thereon) imposed on Seller with
respect to the assets or operations of Seller or any member of the consolidated
group of which Seller is a party, and which are based in whole or in part upon
income, but does not include any Taxes.
"Indemnified Party" has the meaning specified in Section 6.5.
"Indemnifying Party" has the meaning specified in Section 6.5.
"Intellectual Property" means all (i) patents, patent applications, patent
disclosures and inventions, (ii) trademarks, service marks, trade names, URLs,
and corporate names and registrations and applications for registration thereof,
(iii) copyrights and registrations and applications for registration thereof,
(iv) computer software, data and documentation, (v) trade secrets and other
confidential information (including ideas, formulas, compositions, inventions
(whether patentable or unpatentable and whether or not reduced to practice),
know-how, manufacturing and production processes and techniques, research and
development information, drawings, specifications, designs, plans, proposals,
technical data, copyrightable works, financial and marketing plans, marketing
materials and customer and supplier lists and information, (vi) other
intellectual and industrial property rights, and (vii) copies and tangible
embodiments thereof (in whatever form or medium).
"Inventory" has the meaning specified in Section 2.3(f).
"Knowledge" means actual knowledge after reasonable investigation.
"Loss" has the meaning specified in Section 7.1.
"Material Adverse Effect" or "Material Adverse Change" means any effect or
change that would be materially adverse to the Business, taken as a whole, or on
the ability of any Party to consummate timely the transactions contemplated
hereby; provided that none of the following shall be deemed to constitute, and
none of the following shall be taken into account in determining whether there
has been, a Material Adverse Effect or Material Adverse Change: (a) any adverse
change, event, development, or effect arising from or relating to (1) general
business or economic conditions, including such consideration related to the
Seller's Business, (2) national or international political or social conditions,
including the engagement by the United States in hostilities, whether or not
pursuant to the declaration of a national emergency or war, or the occurrence of
any military or terrorist attack by the United States, or any of its
territories, possessions, or diplomatic or consular offices or upon any military
installation, equipment or personnel of the United States, (3) financial,
banking, or securities markets (including any disruption thereof and any decline
in the price of any security or any market index), (4) changes in United States
generally accepted accounting principals, (5) changes in law, rules,
regulations, orders, or other binding directives issued by any governmental
entity or (6) the taking of any action contemplated by this Agreement, (b) any
existing event, occurrence, or circumstance with respect to which Buyer has
Knowledge as of the date hereof and (c) any adverse change in or effect on the
Seller's Business that is cured by Seller before the Closing Date.
"Noncompetition Agreement" has the meaning specified in Section 5.4.
7
"Orbital Polishing Operations" has the meaning specified in Recital A.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Party" has the meaning set forth in the introductory paragraph.
"Purchased Assets" has the meaning specified in Section 2.1.
"Purchase Price" has the meaning specified in Section 2.3.
"Purchase Price Adjustment" has the meaning specified in Section 2.4.
"Records" has the meaning specified in Section 5.1.
"Seller" has the meaning specified in the introductory paragraph.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Sutherlands" shall mean Xxxx Xxxx and Xxxxxxx Xxxxxxxxxx, as individuals.
"Tax or Taxes" means federal, state, municipal, local or foreign taxes,
assessments, additions to tax, deficiencies, duties, fees and other governmental
charges or impositions of each and every kind, whether measured by properties,
assets, wages, payroll, withholding, purchases, value added, payments, sales,
use, business, capital stock or surplus income arising from or in connection
with the business of Seller or its properties or assets prior to the Closing
Date (inclusive of any and all interest or penalties thereon), but does not
include any Income Taxes.
"Third Party Claim" has the meaning specified in Section 6.5.
ARTICLE II
SALE AND PURCHASE OF THE ASSETS
-------------------------------
2.1 Sale and Purchase of the Assets. Subject to the terms and conditions of
this Agreement, at the Closing, Seller shall sell, transfer, convey, assign and
deliver to Buyer, and Buyer shall purchase from Seller, all the right, title and
interest in the assets required or normally used at any time in the last year to
conduct the Orbital Polishing Operations as set forth on Schedule 2.1 (the
"Purchased Assets"). It is expressly agreed that no assets other than those
listed on Schedule 2.1 are being purchased by Buyer.
2.2 Conveyance of Assets. Seller shall convey to Buyer all of Seller's
right, title and interest in and to the Purchased Assets, subject to the
specific liabilities as set forth in Schedule 2.2.
2.3. Purchase Price.
8
(a) Subject to the purchase price adjustment as provided in Sections 2.3
(d), (e) and (f) below, Buyer agrees to pay to Seller the following
consideration for the Purchased Assets (the "Purchase Price"): (i) $684,000 in
cash, (including $25,000 to be deposited into an escrow account pursuant to
Section 2.5) subject to adjustments as provided below (the "Initial Payment"),
(ii) a note in the face amount of $200,000, in the form of Exhibit A attached
hereto (the "Note"), and (iii) Earn Out Payments (as defined below) of
potentially $200,000.
(b) Payment of Cash Portion of Purchase Price. Payment of the Cash portion
of the Purchase Price shall be made at the Closing Date via federal funds wire
or interbank transfer in immediately available funds to the Seller.
(c) Promissory Note. Buyer shall execute and deliver the Note to Seller at
the Closing in the face amount of $200,000 subject to the adjustments as
provided below. The Xxxxxxxxxx'x shall guarantee payment of the Note as provided
in the Guarantee Agreement, attached as Exhibit A to the Note.
(d) Earn Out. During the first four years after the purchase of the
Purchased Assets, the Buyer shall pay to Seller 15% of the gross revenue in
excess of the amounts below from the products included in the Orbital Polishing
Operations (the "Earn Out Payments"). Included in this gross revenue calculation
is all revenue derived from current products or variations to current products
included in the Orbital Polishing Operations. Any revenue derived from new
products developed by Buyer shall be exempt from this gross revenue calculation.
Payments shall be limited to $50,000 for each year. Buyer shall be responsible
for the Earn Out Payments only to the extent that Gross Revenues exceed the
following amounts:
Year Gross Revenue
---- -------------
2003 $ 1,000,000
2004 $ 1,100,000
2005 $ 1,200,000
2006 $ 1,300,000
The Earn Out Payments shall be paid to Seller no later than March 31, of
each year for the preceding calendar year.
(e) Assumption of Current Accounts Payable. Buyer agrees to assume certain
of WTI's accounts payable listed on Schedule 2.3 (the "Assumed Current Accounts
Payable"). The Purchase Price and the amount of cash paid to Seller at Closing
shall be adjusted up or down at the Closing based upon a change in the amount of
Assumed Current Accounts Payable. To the extent that the Assumed Current
Accounts Payable exceed $35,000, then the Purchase Price shall be adjusted down
and the amount of the cash payable to Seller at Closing shall be decreased. To
the extent that the Assumed Current Accounts Payable are less than $35,000, the
Purchase Price shall be adjusted up and the amount of the cash payable to Seller
at Closing shall be increased. To Seller's Knowledge, the Assumed Current
Accounts Payable amount included in this account are not in dispute. Should
disputes arise following Closing with regard to the amount of the Assumed
Current Accounts Payable, Seller shall reimburse Buyer for disputes decided in
favor of the account payee which result in additional payments from Buyer. Any
Assumed Current Accounts Payable in dispute as of the Closing Date, as defined
below, are set forth on Schedule 2.3.
9
(f) Assumption of Current Accounts Receivable. The Purchase Price includes
WTI's current accounts receivable of approximately $90,000 listed in Schedule
2.3 (the "Assumed Current Accounts Receivable"). Seller agrees to guarantee
collection (within 60 days of each receivable amount's due date) of the Assumed
Current Accounts Receivable. Included in the Assumed Current Accounts Receivable
are accounts due not more than 31 days after the Closing, and which have amounts
due and owning to Seller and for which the oldest amounts due are less than 61
days from the date of billing or as thereafter accepted by Buyer. All other
accounts receivable (and all of each such account's balance) shall remain the
Seller's property unless Buyer elects to purchase said accounts in Schedule 2.3.
Should Buyer elect to purchase certain additional accounts receivable, the
Purchase Price shall be adjusted up and the amount of cash payable to Seller at
Closing shall be increased. The Purchase Price and the amount of cash paid to
Seller at Closing shall be adjusted up or down at the Closing based upon a
change in the Assumed Current Accounts Receivable at Closing. To the extent that
the Assumed Current Accounts Receivable is less than $90,000, then the Purchase
Price shall be adjusted downward, and the amount of the cash payable to Seller
at Closing shall be decreased. To the extent that the Assumed Current Accounts
Receivable is greater than $90,000, then the Purchase Price shall be adjusted
upward, and the amount of cash payable to Seller at Closing shall be increased.
(g) Inventory. The Purchase Price includes inventory (the "Inventory")
valued at approximately $215,000. All Orbital Polishing Operations inventory,
including Inventory that has been written down, shall be included in the sale;
no monetary value, however, shall be assigned to inventory that was previously
written down (including having been written down prior to its purchase by WTI).
Raw materials Inventory shall be valued on a raw material-costs-only basis.
Finished goods and work in progress shall be valued at materials-costs plus
direct labor. The Purchase Price shall be adjusted up or down based upon a
change in the value of Inventory at Closing. To the extent that the Inventory
value is less than $215,000, then the Purchase Price shall be adjusted downward,
and the amount of the cash payable to Seller at Closing shall be decreased. To
the extent that the Inventory is greater than $215,000, then the Purchase Price
shall be adjusted upward, and the amount of cash payable to Seller at Closing
shall be increased. The Inventory and its valuation are listed on Schedule 2.3.
The Inventory amount was based upon the physical inventory conducted on December
26 and 27, 2002, that was observed by Buyer's representatives, as adjusted for
materials received and finished good shipped prior to Closing.
2.4 Purchase Price Adjustment. Pursuant to Section 2.3, if the Assumed
Current Accounts Payable, Assumed Current Accounts Receivable, and the Inventory
closing balances differ from those set forth above, the Parties hereto agree to
an adjustment of the Purchase Price (the "Purchase Price Adjustment"). The
Purchase Price shall be reduced or increased, as the case may be, on a
dollar-for-dollar basis. Each of the Assumed Current Accounts Payable, Assumed
Current Accounts Receivable, and the Inventory valuation shall be prepared by
Seller. Buyer shall give written notice pursuant to Section 2.6 to Seller of any
disagreement or disagreements with the amounts of Schedule 2.3 within 60 days of
receipt of the final closing balances.
2.5 Escrow of Funds.
(a) At Closing, the Buyer shall deposit $25,000 (the "Escrowed Funds") into
an escrow account with Xxxxxxxxx & Associates, P.C. (the "Escrow Agent") for the
purpose of reconciliation of the Purchase Price Adjustment based upon the
10
closing balances of the Assumed Current Accounts Payable, Assumed Current
Accounts Receivable, and the Inventory accounts. The Escrow Agent agrees to hold
and deliver the Escrowed Funds in accordance with the terms and conditions of
Sections 2.5 and 2.6. The Escrowed Funds shall be used to adjust the Purchase
Price in the event that the Assumed Current Accounts Payable, Assumed Current
Accounts Receivable, or the Inventory accounts differ from the respective
amounts set forth under Section 2.3. Unless the closing balances of the Assumed
Current Accounts Payable, Assumed Current Accounts Receivable, or the Inventory
accounts are disputed pursuant to Section 2.6, the Escrowed Funds shall remain
in escrow for a period not to exceed 60 days (the "Escrow Period"). During the
Escrow Period the Escrow Funds shall not become the property of the Seller or
any other entity, nor be subject to the debts of the Buyer. The Escrow Agent
shall not make nor permit any disbursements from the Escrowed Funds except as
expressly provided in this Section 2.5.
(b) When the closing balances of the Assumed Current Accounts Payable,
Assumed Current Accounts Receivable, and the Inventory figures become available,
pursuant to Section 2.4, the Purchase Price shall be adjusted as provided for in
Sections 2.3(e), 2.3(f), and 2.3(g). If the Parties agree to the closing
balances of the Assumed Current Accounts Payable, Assumed Current Accounts
Receivable, and the Inventory accounts, the Parties shall execute a letter
setting forth the Purchase Price Adjustment and directing the Escrow Agent to
release the Escrowed Funds. Upon the Escrow Agent's receipt of the letter
setting forth the Purchase Price Adjustment and directing the Escrow Agent to
release the Escrowed Funds, the Escrow Agent shall release the Escrowed Funds to
the Parties within five business days. If the Parties do not agree to the
closing balances of the Assumed Current Accounts Payable, Assumed Current
Accounts Receivable, and the Inventory accounts, the disagreement shall be
resolved in accordance with the provisions of Section 2.6 below.
(c) If the amount of Escrowed Funds released by the Escrow Agent pursuant
to this Section 2.5 shall not be sufficient to satisfy the Purchase Price
Adjustment, to Buyer shall pay to Seller by wire transfer of immediately
available funds to such account as Seller shall designate in writing, the amount
by which the Purchase Price Adjustment exceeds the amount received by Seller at
Closing or (ii) Seller shall pay to Buyer, by wire transfer of immediately
available funds to such account as Buyer shall designate in writing, the amount
by which the Escrowed Funds are insufficient to cover the amount received by
Seller at Closing to the extent that the Purchase Price Adjustment exceeds the
Purchase Price less the Escrowed Funds.
2.6 Disagreement Regarding Assumed Current Accounts Payable, Assumed
Current Accounts Receivable, and Inventory.
(a) If Buyer disagrees as to the amount of the Purchase Price Adjustment or
the valuation of Assumed Current Accounts Payable, Assumed Current Accounts
Receivable, and/or the Inventory, Buyer shall provide written notice to Seller
within 60 days of the receipt of the closing balances of the Assumed Current
Accounts Payable, Assumed Current Accounts Receivable, and the Inventory on
Schedule 2.3. Seller and Buyer shall promptly consult with each other in an
effort to resolve such dispute. The funds deposited into the Escrow Account
shall remain in the Escrow Account and the Escrow Period shall be extended until
resolution of the disagreement regarding the closing balance of the Assumed
Current Accounts Payable, Assumed Current Accounts Receivable, and the
Inventory. If any such point of disagreement cannot be resolved within 30 days
of the date of the Buyer's receipt of the closing balances provided by the
11
Seller on Schedule 2.3, such dispute shall be submitted to the accounting firm
of Xxxxxx, Xxxxxx and Mithuen, Inc. or such firm which is mutually acceptable to
Buyer and Seller ("Accountant") to act as an arbitrator to resolve all points of
disagreement concerning the Assumed Current Accounts Payable, Assumed Current
Accounts Receivable, and the Inventory matters with respect to this Agreement.
The Parties shall execute a letter directing the Escrow Agent to release all
undisputed amounts within five (5) business days after that portion of the
Purchase Price Adjustment is determined hereunder. Accountant's resolution shall
be made within thirty (30) days of the submission of the dispute to Accountant,
shall be in accordance with this Agreement, shall be set forth in a written
statement delivered to Seller and Buyer and shall be final, binding and
conclusive.
(b) Buyer and Seller shall each pay one-half of the fees and expenses of
Accountant in resolving any disagreements as provided herein. Buyer and Seller
shall each pay their own costs incurred in preparing and/or reviewing the
Assumed Current Accounts Payable, Assumed Current Accounts Receivable, and the
Inventory including the fees and expenses of their respective reviewer or
accountant.
(c) Within five (5) business days after the adjusted Purchase Price is
finally determined, the Escrow Agent, upon written notice from Accountant, shall
release the remaining funds to the appropriate party. If the amount of Escrowed
Funds released by the Escrow Agent shall not be sufficient to satisfy the
adjusted Purchase Price, then either (i) Buyer shall pay to Seller by wire
transfer of immediately available funds to such account as Seller shall
designate in writing, the amount by which the Adjusted Purchase Price exceeds
the amount received by Seller at Closing, or (ii) Seller shall pay to Buyer, by
wire transfer of immediately available funds to such account as Buyer shall
designate in writing, the amount by which the amount received by Seller at
Closing exceeds the Adjusted Purchase Price.
2.7 Closing. The closing of the transactions contemplated by this Agreement
(the "Closing") shall take place simultaneously with the execution of this
Agreement on January 9, 2003 at the offices of Xxxxxxxxx & Associates. P.C.,
0000 Xxxxxxxxxxx Xxxxxx, Xxxxx 0000, Xxxxxx, Xxxxxxxx 00000 or at such other
time and place or on such other dates as the Parties may mutually agree (such
date and time of Closing being herein collectively referred to as the "Closing
Date"). The Parties agree that the Closing shall be deemed to be effective as of
12:01 a.m. on the 1st day of January, 2003.
2.8 Purchase Price Allocation. The Purchase Price shall be allocated among
the Purchased Assets in accordance with Section 1060 of the Code, and the Buyer
and Seller agree that the Purchase Price shall be allocated among the Purchased
Assets as set forth in Schedule 2.8.
ARTICLE III
SELLER'S REPRESENTATIONS AND WARRANTIES
---------------------------------------
3.1. Representations and Warranties of Seller. Seller hereby represents and
warrants to Buyer that the statements contained in this Section 3 are correct
and complete as of the date of the Closing, except as set forth in the
disclosure schedules accompanying this Agreement and initialed by the Parties
(the "Disclosure Schedules"), which shall be deemed representations and
warranties of Seller. The Disclosure Schedules will be arranged in paragraphs
corresponding to the lettered and numbered paragraphs contained in this Section
3.
12
3.2. Corporate Existence. Wonder Tool, Inc. is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Colorado and has full corporate power and authority to own or lease its
properties and to carry on its business as now conducted. Seller is qualified to
do business as a foreign entity in each jurisdiction where failure to be so
qualified would have a material adverse effect on it's the Business' financial
condition, business, prospects or operations.
3.3. Authorization. Seller has full corporate power and authority to
execute and deliver this Agreement, to perform its obligations under this
Agreement and to consummate the transactions contemplated herein. The execution,
delivery and performance of this Agreement by Seller has been duly authorized by
all requisite corporate action. This Agreement is the legal, valid and binding
obligation of Seller enforceable in accordance with its terms and conditions.
3.4. Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) to the Knowledge of Seller violate any constitution, statute, regulation,
rule, injunction, judgment, order, decree, ruling, charge, or other restriction
of any government, governmental agency, or court to which Seller is subject,
(ii) violate any provision of the Articles of Incorporation or Bylaws of Seller
or (iii) to the Knowledge of Seller, conflict with, result in a breach of,
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
under any agreement, contract, lease, license, instrument, or other arrangement
to which Seller is a party or by which it is bound or to which any of its assets
is subject, except where the violation, conflict, breach, default, acceleration,
termination, modification, cancellation, or failure to give notice would not
have a Material Adverse Effect on the ability of Seller to consummate the
transactions contemplated by this Agreement. To the Knowledge Seller, it does
not need to give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency in
order for the Parties to consummate the transactions contemplated by this
Agreement except for the matters described in Schedule 3.4.
3.5. Broker Fees. Except for a finder's fee payable to IBG Business
Services, Seller has no liability or obligation to pay any fees or commissions
to any broker, finder, or agent with respect to the to the transactions
contemplated by this Agreement for which Buyer could become liable or obligated.
3.6. Title to Tangible Assets. Seller has good and marketable title to the
Purchased Assets held in each case subject to no mortgage, pledge, lien,
encumbrance, security interest or charge of any kind.
3.7. Litigation. Except as set forth on Schedule 3.7, to Seller's
Knowledge, no action, suit, proceeding or investigation is pending against WTI.
Seller has not received written notice of any threatened action, suit,
proceeding or investigation against Seller, which could reasonably be expected,
either individually or in the aggregate, to result in any liability on the part
of Seller which would have a Material Adverse Effect, and there is no Action
relating to the Business by Seller currently pending or which Seller intends to
initiate. Furthermore, except as set forth on Schedule 3.7, Seller is not a
party to or subject to the provisions of any order, writ, injunction, judgment
or decree of any court or government agency or instrumentality.
13
3.8. Legal Compliance. Except as set forth on Schedule 3.8, to the
Knowledge of Seller, it has not received written notice that it is in violation
of or is in default under: (a) any governmental licenses, franchises, permits,
approvals and other governmental authorizations, other than those the absence of
which would not have a Material Adverse Effect, which are necessary to entitle
WTI to own or lease, operate and use its assets and properties and to conduct
the Business as now conducted (the "Governmental Authorizations"); (b) any
judgment, order or decree of any court or administrative agency applicable to
it; or (c) any law, rule or regulation applicable to it; which could reasonably
be expected to result in any liability on the part of Seller which would have a
Material Adverse Effect.
3.9. Income Tax Matters.
(a) Seller has filed or will file (or where permitted or required its
respective direct or indirect parent has filed or caused to be filed or will
file or cause to be filed) all WTI tax returns required to be filed for any
period ending on or before the Closing Date, or if applicable, any period that
includes the Closing Date, and have paid or will pay or cause to be paid (or
where permitted or required its respective direct or indirect parent has paid or
caused to be paid or will pay or cause to be paid) all Income Taxes due to any
taxing authority with respect to all such periods, except as contested in good
faith.
(b) Except as set forth on Schedule 3.9, Seller has not received (or where
permitted or required its respective direct or indirect parent has received)
written notice that the Internal Revenue Service or any other taxing authority
have asserted against Seller any deficiency or claim for additional Income Taxes
in connection therewith.
(c) Except as set forth on Schedule 3.9, WTI has not been granted (or where
permitted or required its respective direct or indirect parent have been
granted) any waiver of any statute of limitations with respect to, or any
extension of a period for the assessment or filing of, any Income Tax.
(d) Except as set forth in Schedule 3.9., Seller is not involved with any
action, suit, proceeding or audit pending regarding taxes.
(e) Except as set forth in Schedule 3.9., Seller has not waived any statute
of limitations in respect of taxes or agreed to any extension of time with
respect to Tax assessment or deficiency.
(f) Except as set forth in Schedule 3.9., Seller is not a party to any
Income Tax allocation or sharing agreement.
3.10. Benefit Plans. WTI does not maintain, sponsor or contribute to any
Employee Pension Benefit Plan that is a "defined benefit plan" (as defined in
ERISA ss.(35)).
3.11. Permits. WTI holds all of the permits described on Schedule 3.11, and
no other licenses, certificates, permits, franchises and rights, federal, state,
local, and foreign, are currently necessary for the lawful operation of the
Business, except for those the absence of which would not have a Material
Adverse Effect on the business of the Business.
14
3.12. Financial Statements. Attached hereto as Schedule 3.12 are WTI's
unaudited financial statements (the "Financial Statements") for the year ended
December 31, 2002. The Financial Statements present fairly the financial
condition of WTI as of such date and the results of the operations for WTI for
such period; provided however that the Financial Statements are subject to
normal year-end adjustments and lack footnotes and other presentation items.
3.13. No Adverse Change. Except as listed on Schedule 3.13, since September
30, 2002, there has not been (i) any Material Adverse Change in the Business.
Without limiting the foregoing, since that date Seller has not engaged in any
practice, taken any action, or entered into any transaction outside of the
Ordinary Course of Business other than entering into the letter of intent with
the Buyer for the consummation of the transaction contemplated by this
Agreement. In addition, since September 30, 2002, Seller has not done nor
committed to do any of the following:
(a) suffered a termination of, or amendment of, any Permit;
(b) changed its methods of accounting in any respect;
(c) mortgaged or pledged any of the Purchased Assets or subjected them
to any lien;
(d) sold, assigned or transferred any of WTI's tangible Assets, except
in the Ordinary Course of Business;
(e) sold, assigned or transferred any Intellectual Property as related
to the Business or WTI;
(f) suffered any extraordinary losses or waived any rights of material
value, whether or not in the Ordinary Course of Business or consistent with past
practice;
(g) made capital expenditures or commitments therefor; entered into
any other transaction other than in the Ordinary Course of Business or entered
into any other material transaction, not in the Ordinary Course of Business;
(h) suffered any damage, destruction, casualty, or loss to any
Purchased Assets, whether or not covered by insurance; or
(i) made or suffered any amendment or termination of any Contracts or
arrangements;
(j) suffered a termination of, or amendment of, any Permit;
(k) changed its methods of accounting in any respect.
3.14. Intellectual Property. Schedule 3.14 is an accurate and complete list
of each currently valid patent, trademark or registration that has been issued
to or is pending and is currently in effect for WTI in connection with the
15
Business and identifies each material license, agreement, or other permission
that Seller has granted to any third party with respect to its Intellectual
Property which is related to the Business. Except as set forth on Schedule 3.14,
none of the Intellectual Property has been or is the subject of any pending
adverse claim, or to the Knowledge of Seller, any threatened litigation or claim
of infringement. Except as set forth on Schedule 3.14, no license or royalty
agreement to which WTI is a party is in default or the subject of any notice of
termination given, nor does Seller have reason to anticipate any such default or
notice or that the transactions herein contemplated will result in termination
or in any reduction hereafter (except by reason of reduced sales volume) in
royalties payable under any such agreement. Except as otherwise set forth on
Schedule 3.14, Seller has not granted any license in respect of any Intellectual
Property.
(a) Ownership. To the Knowledge of Seller, it has full title and
ownership of, or has license to, all of the Intellectual Property necessary to
enable it to carry on the Business as now conducted without any conflict with or
infringement of the rights of others. To the Knowledge of Seller, no third party
has any ownership right, title, interest, claim in, or lien on any of such
Intellectual Property. Seller will transfer to Buyer its rights under trade
secrets non-disclosure agreements between Seller and employees, contractors, and
other workers in the Business.
(b) No Infringement. WTI has not violated or infringed, and is not
currently violating or infringing any proprietary right of any other person or
entity. WTI has not received any communications alleging that WTI (or any of its
employees, contractors or consultants) has violated or infringed or, by
conducting the Business as proposed, would violate or infringe, any proprietary
right of any other person or entity.
(c) No Breach by Employee. To Seller's Knowledge, no employee or
consultant of Seller is obligated under any agreement (including licenses,
covenants or commitments of any nature) or subject to any judgment, decree or
order of any court or administrative agency, or any other restriction that would
interfere with the use of his or her best efforts to carry out his or her duties
in connection with the Business or to promote the interests of the Business or
that would conflict with the Business as proposed to be conducted. To Seller's
Knowledge, the carrying on of the Business by the employees and contractors of
the Seller will not conflict with or result in a breach of the terms, conditions
or provisions of, or constitute a default under, any contract, covenant or
instrument under which any of such employees or contractors is now obligated.
Seller does not believe it is or will be necessary to utilize any inventions of
any employees of Seller made prior to their employment by the Seller. To
Seller's Knowledge, at no time during the conception of or reduction of any of
the WTI's Intellectual Property to practice was any developer, inventor or other
contributor to such patents operating under any grants from any governmental
entity or agency or private source, performing research sponsored by any
governmental entity or agency or private source or subject to any employment
agreement or invention assignment or nondisclosure agreement or other obligation
with any third-party that could adversely affect the Seller's rights in such
Intellectual Property.
3.15. Contracts. Schedule 3.15 lists all material Contracts and other
written agreements to which WTI is a party, (a) the performance of which will
involve consideration in excess of $3,000 and/or (b) which are not terminable
upon thirty (30) days or less notice. WTI has delivered to Buyer true and
correct copies of each listed document and a written description of each oral
arrangement so listed.
16
3.16 Environment, Health, and Safety.
(a) To the Knowledge of Seller, WTI has complied with and is currently
in compliance with all Environmental Laws in connection with its operation of
the Business.
(b) To the Knowledge of Seller and in connection with the operation of
the Business, Seller has not received any written notice, report or other
information regarding any actual or alleged material violation of Environmental
Laws, or any material liabilities or potential material liabilities (whether
accrued, absolute, contingent, unliquidated or otherwise), including any
investigatory, remedial or corrective obligations relating to WTI or its
facilities arising under Environmental Laws.
(c) To the Knowledge of Seller, it has obtained and presently holds
all the necessary permits or other necessary authority to conduct the Business
in compliance with Environmental Laws. Said permits and authorities are
disclosed in Schedule 3.16. Any transferable permits necessary for the Business
will be transferred to Buyer upon Closing.
3.17. Accounts Receivable. All accounts receivable have arisen out of bona
fide transactions in the ordinary course of business, and each such account
receivable constitutes a valid and binding obligation of the obligor, maker,
co-maker, guarantor, endorser or debtor thereof or thereunder.
3.18. Adequacy of Assets for Business. The Purchased Assets constitute all
of the equipment, parts, supplies, tools, inventories, materials, Intellectual
Property, and the like as the Business has been and is presently being conducted
by Seller in the Ordinary Course of Business, excepting only those assets noted
in Schedule 2.1 as excluded. Excepting only those assets noted in Schedule 2.1
as excluded, no items have been omitted from the Purchased Assets that are
necessary or were used in the past year for the conduct of the Orbital Polishing
Operations. WTI owns (i) all of WTI's books and records and (ii) rights of
access to the books and records of Cyclo Manufacturing, Inc. solely as related
to the business of Orbital Polishing Operations WTI purchased from that company.
3.19 Underwriter's Laboratories if Required for Product Liability
Insurability. To Seller's Knowledge, Seller has not taken nor failed to take any
action that would adversely affect the ability of Seller or Buyer to obtain
product liability insurance for the electrical orbital polisher. Should Seller
have taken any direct action or have failed to take any direct action that
requires Buyer to expend funds to obtain certification of Underwriters
Laboratories for the electrical orbital polisher, and subject to the requirement
that such certification is required for Buyer's product liability insurance,
then Seller agrees to pay 50% of the direct cost to Buyer to obtain such
certification so long as Seller is notified within six (6) months after Closing
of such circumstance and is provided with information about the nature and
amount of any such expenditure in advance of Buyer committing to or incurring
any such expenditures. The maximum amount that Seller shall be obligated to pay
under this provision shall be limited to $20,000.
3.20. No Other Agreement. Other than for sales of assets in the ordinary
course of business, WTI does not have any contract, agreement, arrangement or
understanding with respect to the sale or other disposition of any assets
(including the Purchased Assets) or capital stock of WTI except as set forth in
this Agreement.
17
3.21. Machinery. At the time of Closing, all manufacturing machinery
included in Purchased Assets shall be in good working order. No further warranty
is expressed or implied as to the machinery's future working order.
3.22. Disclaimer of Other Representations and Warranties. Except as
expressly set forth in this Article III, WTI make no representations or
warranties, express or implied, at law or in equity, in respect of any of the
Purchased Assets, liabilities or operations, including without limitation, with
respect to merchantability or fitness for any particular purpose, and any such
other representations and warranties are hereby expressly disclaimed. Buyer
hereby acknowledges and agrees that, except to the extent specifically set forth
in this Article III, Buyer is purchasing the Purchased Assets on an "as-is,
where-is" basis.
3.23. Disclosure. No representation or warranty by the Seller in this
Agreement or in any statement or certificate signed by any officer of Seller
furnished or to be furnished to the Buyer pursuant to this Agreement contains or
will contain any untrue statement of a material fact or omits or will omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances in which they are
made, not misleading.
ARTICLE IV
BUYER'S REPRESENTATIONS AND WARRANTIES
--------------------------------------
4.1. Representations and Warranties of Buyer. Buyer hereby represent and
warrant to Seller that the statements contained in this Section 4 are correct
and complete as of the date of this Agreement.
4.2. Corporate Existence. Buyer is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Colorado and has
full corporate power and authority to own or lease its properties and to carry
on its business as now conducted. Buyer has delivered to Seller true and
complete copies of the Articles of Incorporation and Bylaws of Buyer as amended
to date.
4.3. Authorization. Buyer has full corporate power and authority to execute
and deliver this Agreement, to perform its obligations under this Agreement and
to consummate the transactions contemplated herein. The execution, delivery and
performance of this Agreement by Buyer has been duly authorized by all requisite
corporate action. This Agreement is the legal, valid and binding obligation of
Buyer enforceable in accordance with its terms and conditions, subject, as to
enforcement of remedies, to applicable bankruptcy, insolvency, moratorium,
reorganization and similar laws affecting creditors' rights generally and to
general equitable principles. Buyer has delivered to Seller true and complete
copies of the resolutions of the Board of Directors authorizing Buyer to enter
into, execute and deliver this Agreement and all related documents.
18
4.4. Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) to the Knowledge of Buyer, violate any constitution, statute, regulation,
rule, injunction, judgment, order, decree, ruling, charge, or other restriction
of any government, governmental agency, or court to which Buyer is subject, (ii)
violate any provision of the Articles of Incorporation or Bylaws of the Buyer or
(iii) to the Knowledge of Buyer, conflict with, result in a breach of,
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
under any agreement, contract, lease, license, instrument, or other arrangement
to which the Buyer is a party or by which it is bound or to which any of its
assets. Other than in connection with the provisions of the Colorado Business
Corporation Act, to the Knowledge of Buyer, the Buyer does not need to give any
notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order for the Parties to
consummate the transactions contemplated by this Agreement.
4.5. Broker Fees. Buyer has no liability or obligation to pay any fees or
commissions to any broker, finder, or agent with respect to the to the
transactions contemplated by this Agreement for which Seller could become liable
or obligated.
4.6. Solvency of Buyer. Upon giving effect to the consummation of the
transactions contemplated hereby:
(a) Buyer believes that that it will be able to repay its existing debt and
other liabilities as they become due, as well as the Note and any other debt
incurred to consummate the transactions contemplated by this Agreement in the
ordinary course of its business.
(b) Buyer (i) is not insolvent (within the meaning contemplated by Section
548 of Title 11 of the United States Code and any similar state statute which
may be applicable), (ii) has assets having a fair value in excess of the amount
required to pay their probable liabilities on their existing debts as they
become due, (iii) has access to adequate capital for the conduct of its business
and the ability to pay their debts from time to time incurred in connection
therewith as such debts mature, and (iv) will not become insolvent as a result
of incurring additional debt or liabilities to consummate the transactions
contemplated under this Agreement.
4.7 Disclosure. No representation or warranty by Buyer in this Agreement or
in any statement or certificate furnished or to be furnished to the Seller
pursuant to this Agreement contains or will contain any untrue statement of a
material fact or omits or will omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances in which they are made, not misleading.
ARTICLE V
CERTAIN COVENANTS
-----------------
5.1. Full Access and Information; Confidentiality. From the date of the
Letter of Intent relating to the this transaction until the Closing Date and for
ninety days thereafter, Seller either has or will give to Buyer and its
representatives reasonable access to WTI's properties, books, records, contracts
and commitments and has furnished all such information and documents relating to
19
its properties and the Orbital Polishing Operations (collectively the
"Records"), as Buyer has reasonably requested, and Buyer has furnished to Seller
and its representatives all such information and documents relating to Buyer as
Seller reasonably requested. Each of the Parties will treat, and will cause its
representatives to treat, all information that they received under this Section
5.1, if not in the public domain, as confidential. Seller shall grant access to
Buyer to photocopy such records at the offices of Cyclo Manufacturing, Inc.
However, the Records shall not be removed from the premises and shall at all
times if not in the public domain remain as confidential.
5.2. Regulatory Filings. Each of the Parties have given or will give all
notices to and made any necessary filings with governments and governmental
agencies.
5.3 Noncompetition Agreement. The Seller, Glas-Aire, Xxxxxx X. Xxxxxxx,
Xxxxxxx Xxxxxxxxxx and Xxxxx Xxxxxxxx shall enter into a Noncompetition
Agreement in favor of Buyer (the "Noncompetition Agreement"), substantially in
the form of attached hereto as Exhibit B.
5.4 Nondisclosure. Seller acknowledges that included in the Purchased
Assets are certain Intellectual Property that Seller has used exclusively in the
Business and that has commercial value in the Business and accordingly have been
treated by Seller as confidential. All such information (collectively, the
"Confidential Information") shall be kept confidential by Seller as provided
below; provided, however, that the term "Confidential Information" shall not
include any information which shall have been made public by Seller or its
Affiliates prior to the date hereof or which shall be made public by Buyer or
its Affiliates at any time after the Closing Date. Seller agrees that on and
after the Closing Date, it and its Affiliates will keep in strictest confidence
and trust all Confidential Information and neither Seller nor any of its
Affiliates will, without Buyer's prior written consent, use or disclose any
Confidential Information, except to the extent (i) necessary to comply with any
legal requirements in connection with Seller's ownership or operation of the
Purchased Assets prior to the Closing Date, such as the filing of income tax
returns or reports or (ii) Seller or any of its Affiliates becomes legally
compelled (e.g., by oral questions, interrogatories, request for information or
documents, subpoena, civil investigative demand or similar process) to disclose
any of the Confidential Information, in which case, Seller or its Affiliates, as
the case may be, will provide Buyer with prompt written notice so that Buyer may
seek a protective order or other appropriate remedy and/or waive compliance with
the provisions of this Section 5.4. If such protective order or other remedy is
not obtained or Buyer waives compliance with the provisions of this Section 5.4,
Seller or its Affiliate, as the case may be, will furnish only that portion of
the Confidential Information which is legally required.
5.5. Post-Closing Consulting Services. Seller will cause Xxxxxxx and
Xxxxxxxxxx to provide Buyer, at Buyer's option, up to an aggregate of 120 hours
of consulting services within the first 8 weeks following the Closing without
charge. In addition, Xxxxxxx and Xxxxxxxxxx will be available by phone during
regular business hours for 16 weeks following Closing.
5.6. Conduct of the Business. Seller will use reasonably commercial efforts
to induce and convince present customers, distributors and suppliers to continue
their relationship with Buyer. For at least 2 years following Closing, Seller
will cause Cyclo Manufacturing, Inc. to maintain the placement of links and
notices on Cyclo Manufacturing, Inc.'s web site of redirecting web site visitors
interested in products and services of the Business to Buyer's web site. Seller
will cause Cyclo Manufacturing, Inc. to forward mail (including email) and refer
phone callers to Buyer for at least 2 years following Closing. These direct
costs for these services of Cyclo Manufacturing, Inc. shall be borne by Buyer.
20
5.7. Lease. Seller shall cause Cyclo Manufacturing, Inc. to enter into a
lease with Buyer, attached hereto as Exhibit C, for Buyer's use of Cyclo
Manufacturing, Inc.'s office and warehouse space in which the Polishing
Operations is currently located and other services.
5.8. Cost of Motors. Seller shall guarantee that Buyer for a period of
twenty-four months from the date of this Agreement, may purchase motor
components (field and armature) used in the Business under its contract with
Asian American for a price not to exceed $7.00 per unit (field and armature
together). Such guarantee shall be capped at a maximum amount of 12,500 units
purchased from the date of this Agreement. In the event that that the cost of
the motors exceeds $7.00 per unit, Buyer shall be entitled upon demand to
reimbursement from Seller for the difference between such cost and the $7.00
guaranteed price. Should Asian American be unable or unwilling to provide motor
components in accordance with its contract referenced herein, Buyer shall be
entitled to reimbursement for the difference between such cost (limited only to
the direct cost to Buyer of each motor unit) and the $7.00 guaranteed price.
Buyer agrees in good faith to seek the best available price for the motors from
an alternative supplier if the price being offered by the current supplier
exceeds $7.00 per unit. In the event Buyer shall be entitled to reimbursement
for such cost, Buyer shall send written notice for reimbursement, a copy of the
invoice from the supplier proving the direct cost of each motor unit for which
Buyer claims reimbursement, and a copy of each invoice sent to Buyer for the
purchase of motors from the date of this Agreement detailing the specific number
of motor units Buyer has purchased. Upon receipt of these items, Seller shall
reimburse Buyer within 30 days.
5.9. Assignment of Contracts. Seller shall assign to Buyer all of their
right, title and interest in and to the Contracts related to the Business, set
forth on Schedule 5.9. Notwithstanding the foregoing, no Contract shall be
deemed to be assigned to Buyer to the extent that such assignment is prohibited
by law or by a valid and enforceable prohibition to such an assignment contained
in such Contract until the necessary waiver or consent (whether express or by
acquiescence) to such assignment has been obtained or such provision has been
rendered ineffective or unenforceable by law, action of the Parties or
otherwise, whether before or after the Closing Date.
5.10. Intellectual Property Assignments and Acknowledgement. Seller shall
assign to Buyer all of its right, title and interest in and to the Intellectual
Property related to the Business, set forth on Schedule 3.14.
5.11. Powers of Attorney. There are no outstanding powers of attorney
executed on behalf of WTI.
5.12. Payment of Assumed Liabilities. Buyer covenants that it will pay the
Assumed Current Accounts Payable as they become due, subject to good xxxxx xxxx
fide disputes.
5.13. Financial Statements. Buyer agrees to provide Seller at Closing
balance sheets as of November 30, 2002 or later. Buyer will provide Seller with
a balance sheet and an income statement as of December 31 of the preceding
fiscal year, no later than February 15 of each year, so long as the Note is
outstanding.
21
5.14. Deletion From the Assets. By written notice to Seller delivered not
less than two (2) business days prior to the Closing Date, Buyer may elect to
delete any of the assets from the Purchased Assets and thus exclude them from
this transaction. No such deletion shall affect the Purchase Price.
5.15. Post-Closing Covenant. If at any time after the Closing any further
action is necessary to carry out the purposes of this Agreement, each of the
parties will take such further action (including the execution and delivery of
such further instruments and documents) as the other party reasonably may
request, all at the sole cost and expense of the requesting party (unless
otherwise obligated to pursuant to this Agreement).
ARTICLE VI
REMEDIES FOR BREACH OF THIS AGREEMENT
-------------------------------------
6.1. Survival of Representations and Warranties. Except as otherwise
provided for herein, the representations and warranties of the respective
Parties, as set forth in this Agreement, shall survive the Closing for a period
of two (2) years thereafter and each parties' obligation to indemnify the other
under this Agreement shall terminate on the second anniversary of Closing.
6.2 Breach of Seller's Warranties. Seller agrees to indemnify, defend and
hold harmless Buyer and its shareholders, officers, directors, employees,
Affiliates, attorneys, and agents from and against and in respect of any and all
losses, damages, claims, liabilities, actions, suits, proceedings and costs and
expenses of defense thereof, including reasonable attorneys' fees (a "Loss"),
suffered or incurred by any such party by reason of or arising out of breach of
the representations and warranties and covenants of Seller set forth in this
Agreement, subject to each of the terms, conditions and limitations set forth in
Section 6.3 hereof.
6.3. Limitations on Seller's Indemnification. Notwithstanding anything
contained herein to the contrary, Buyer shall not be entitled to indemnification
for Losses under the provisions of Section 6.2 hereof, (i) unless it shall have
given written notice to Seller, setting forth its claim for indemnification in
reasonable detail, (ii) unless and until the aggregate amount of all Losses
under Section 6.2 shall have exceeded $25,000, in which event Buyer shall be
entitled to such indemnification for all Losses; provided, that, the amount of
any Loss for which indemnification is provided under Section 6.2 hereof shall be
net of any amounts recovered by Buyer under insurance policies with respect to
such Loss. Buyer shall in a timely fashion submit a claim to its insurance
carrier with respect to any Loss for which Seller is obligated to provide
indemnification to Buyer hereunder. Indemnification shall be limited to the
amount of consideration actually paid to Seller.
6.4. Right of Offset. To the extent Buyer pays, covers or becomes
responsible for any (a) obligation, liability, accounts payable, or claim which
it does not assume as provided in Section 2.2 above, or (b) Adverse Consequences
for which it is entitled to indemnification or Warranty Claim Amounts as
provided in Section 6.10 below, or (c) other obligation, liability or amount
under this Agreement for which Seller is ultimately responsible or that is not
among the Purchased Assets acquired hereunder by Buyer (collectively, all
amounts accruing under (a), (b), (c) or any combination thereof are referred to
22
as "Offsetable Amounts"), then Buyer shall have the right to offset at any time
and from time to time all Offsetable Amounts against any amount owing, due or
payable to Seller under or in connection with this Agreement, including amounts
outstanding under the Note, or any portion of the Purchase Price outstanding or
any installment hereunder. Such right shall be exercised in good faith by Buyer
and may be exercised without prior notification to Seller, provided that Buyer
furnishes a statement to Seller indicating the amount and nature of each offset.
6.5 Breach of Buyer's Warranties. Buyer agrees to indemnify, defend and
hold harmless Seller and its respective shareholders, officers, directors,
employees, Affiliates, attorneys and agents against and in respect of any and
all losses, damages, claims, liabilities, actions, suits, proceedings and costs
and expenses of defense thereof, including reasonable attorneys' fees ( a
"Loss"), suffered or incurred by any such party by reason of or arising out of
breach of the representations and warranties and warranties of Buyer set forth
in this Agreement, subject to each of the terms, conditions and limitations set
forth in Section 6.6 hereof.
6.6. Limitation on Buyer's Indemnification. Notwithstanding anything
contained herein to the contrary, Seller shall not be entitled to
indemnification for Losses under the provisions of Section 6.5 hereof, (i)
unless Seller shall have given written notice to Buyer, setting forth its claim
for indemnification in reasonable detail, (ii) unless and until the aggregate
amount of all Losses under Section 6.5 shall have exceeded $25,000, in which
event Seller shall be entitled to such indemnification for all Losses, provided,
that, the amount of any Loss for which indemnification is provided under Section
6.5 hereof shall be net of any amounts recovered by Seller under insurance
policies with respect to such Loss. Seller shall in a timely fashion submit a
claim to its insurance carrier with respect to any Loss for which Buyer is
obligated to provide indemnification to Seller hereunder.
6.7. Third Parties. If any third party shall notify any Party (the
"Indemnified Party") with respect to any matter (a "Third Party Claim") which
may give rise to a claim for indemnification against the other Party (the
"Indemnifying Party") under this Section 6, then the Indemnified Party shall
promptly (and in any event within 5 business days after receiving notice of the
Third Party Claim) notify each Indemnifying Party thereof in writing.
(a) Any Indemnifying Party will have the right at any time to assume
and thereafter conduct the defense of the Third Party Claim with counsel of
his or her choice.
(b) Unless and until an indemnifying party assumes the defense of the
Third Party Claim as provided in Section 6.7(a) above, however, the
Indemnified Party may defend against the Third Party Claim in any manner he
or it reasonably deems appropriate.
(c) In no event will the Indemnified Party consent to the entry of any
judgment or enter into any settlement with respect to the Third Party Claim
without the prior written consent of each of the Indemnifying Parties.
6.8. Determination of Adverse Consequences. All indemnification payments
under this Section 6 shall be paid to the Indemnifying Party net of any Tax
benefits and insurance coverage that may be available to the Indemnified Party
and shall be adjusted to take into account the time value of money. All
indemnification payments under this Section 6 shall be deemed to be adjustments
of the Purchase Price.
23
6.9. Exclusive Remedy. Buyer and Seller acknowledge and agree that the
foregoing indemnification provisions to this Section 6 shall be the exclusive
remedy of Buyer and Seller with respect to the transactions contemplated by this
Agreement.
6.10. Product Warranty Claims. Buyer shall be responsible for all product
returns, service and repairs to the Business' products that Seller has sold
prior to the Closing and Seller shall reimburse Buyer for gross margin, the
direct return shipping costs to the customer paid by Buyer of such returns and
the direct labor and materials of such warranty services and repairs rendered by
Buyer. Seller shall have the right to review such product warranty claims from
Buyer and such reimbursement for returns, service and repairs shall be subject
to Seller's approval, which shall not be unreasonably withheld. Buyer shall be
responsible for any and all product liability claims made subsequent to the
execution of this Agreement and only for those products and services sold to
customers of the Business after the date hereof.
ARTICLE VII
MISCELLANEOUS
-------------
7.1. Expenses. Each of the Parties will bear its own costs and expenses
(including legal fees and expenses) incurred in connection with this Agreement
and the transactions contemplated hereby.
7.2. Assignment. This Agreement shall be binding upon and inure to the
benefit of the Parties named herein and their respective successors and
permitted assigns. No Party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other Parties.
7.3. Amendment and Modification; Waivers. This Agreement or any term hereof
may be changed, waived, discharged or terminated only by an agreement in writing
signed by the party against which such change, waiver, discharge or termination
is sought to be enforced. No waiver by a party of any condition or of any breach
of any term, covenant, representation or warranty contained herein shall be
effective unless in writing, and no waiver in any one or more instances shall be
deemed to be a further or continuing waiver of any such condition or breach in
any other instances or a waiver of any other condition or breach of any other
term, covenant, representation or warranty.
7.4. Sales and Transfer Taxes. Buyer shall be responsible for and pay all
applicable sales, transfer, documentary, use, filing and other taxes and fees
that may become due and payable as a result of the sale, transfer and delivery
of the Purchased Assets, whether levied on Buyer or Seller (other than Income
Taxes imposed by any applicable jurisdiction on Seller).
7.5. Tax and Financial Cooperation. After the Closing, Seller and Buyer
agree to cooperate with each other in connection with any official tax inquiry,
tax audit, tax determination or tax-related proceeding affecting tax liability
24
of Seller or in connection with a determination of any tax liability or
treatment to make available to each other party within a reasonable amount of
time, at no cost to such party, or its employees and officers, together with
documents, correspondence, reports, books and records of WTI and other materials
bearing on such tax inquiry, audit, examination, proceeding or determination of
tax liability or treatment, provided that each party shall be reimbursed for any
out-of-pocket expenses it incurs in assisting another party hereunder.
7.6. Entire Agreement. This Agreement together with all other instruments
executed in connection with this Agreement constitute the entire agreement among
the Parties and supersedes any prior understandings, agreements, or
representations by or among the Parties, written or oral, to the extent they
related in any way to the subject matter hereof. In the event of any conflict,
this Agreement will take precedence over any other instrument or document.
7.7. Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
7.8. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
7.9. Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
7.10. Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to Cyclo Toolmakers, Inc.:
Xx. Xxxx Xxxx Xxxxxxxxxx, Chief Executive Officer
Cyclo Toolmakers, Inc
0000 Xxxxxx Xxxx
Xxxxx, Xxxxxxxx 00000
If to Wonder Tool, Inc.
Xx. Xxxxx Xxxxxxxx, President
0000 Xxxxxxxxxxx Xxx Xxxxxxxx, X.X.
Xxxxxx, X0X 0X0
Copy to:
Xxxxx X. Xxxxxxxxx, Esq.
Xxxxxxxxx & Associates, P.C.
0000 00xx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxxxxx 00000
25
Any party may send any notice, request, demand, claim, or other
communication hereunder to the intended recipient at the address set forth above
using any other means (including personal delivery, expedited courier, messenger
service, telecopy, telex, ordinary mail, or electronic mail), but no such
notice, request, demand, claim, or other communication shall be deemed to have
been duly given unless and until it actually is received by the intended
recipient. Any party may change the address to which notices, requests, demands,
claims, and other communications hereunder are to be delivered by giving the
other Parties notice in the manner herein set forth.
7.11. Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Colorado without giving effect
to any choice or conflict of law provision or rule (whether of the State of
Colorado or any other jurisdiction) that would cause the application of the laws
of any jurisdiction other than the State of Colorado.
7.12. Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. 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. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context otherwise requires. The
word including shall mean including without limitation.
7.13. Incorporation of Exhibits and Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
7.14. Time of the Essence. Time shall in all respects be of the essence,
provided that the time for doing or completing any matter provided for in this
Agreement may be extended or abridged by an agreement in writing signed by
Seller and Buyer.
7.15. Facsimile Signature. A signature on this Agreement or on any document
provided herein transmitted by facsimile shall be the binding signature of the
signing party and shall be deemed for all purposes to be an original signature.
26
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on the
date first above written.
WONDER TOOL, INC.
----------------------------------
Xxxxx Xxxxxxxx, President
CYCLO TOOLMAKERS, INC.
----------------------------------
Xxxx Xxxx Xxxxxxxxxx, Chief Executive Officer and Chairman
27
