EXHIBIT 10.12
ASSET PURCHASE AGREEMENT
BY AND AMONG
WEBALG, INC. ("BUYER"),
LEASE MARKETING, LTD., WIZARD ASSET ACQUISITION LLC, LML ASSET
ACQUISITION, LLC, LML SYSTEMS, INC. (EACH A "SELLER ENTITY" AND
TOGETHER, THE "SELLER ENTITIES"), AND
XXXX XXXXXXX, TRUST CREATED UNDER THE XXXX XXXXXXX
DECLARATION OF TRUST DATED OCTOBER 22, 2002 AND XXXXX XXXXXX
("PRINCIPALS" AND, TOGETHER WITH THE SELLER ENTITIES, THE SELLER
PARTIES)
EFFECTIVE AUGUST 1, 2004
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (the "Agreement"), dated as of July 30, 2004
by and among webalg, inc., a Delaware corporation ("Buyer"), Wizard Asset
Acquisition LLC, LML Asset Acquisition, LLC, LML Systems, Inc., Lease Marketing,
Ltd. (together the "Seller Entities"), Xxxx Xxxxxxx ("Xxxxxxx"), the trust
created under the Xxxx Xxxxxxx Declaration of Trust dated October 22, 2002 (the
"Xxxxxxx Trust"), and Xxxxx Xxxxxx ("Xxxxxx," Xxxxxxx, Xxxxxxx Trust and Xxxxxx
being the "Principals" and, together with the Seller Entities, the "Seller
Parties").
W I T N E S S E T H:
WHEREAS, the Seller Parties own or have the rights to use and transfer all
of the assets used in connection with the Business (as defined herein);
WHEREAS, the Seller Parties desire to sell, and Buyer desires to purchase
certain assets used in the Business on the terms and conditions set forth in
this Agreement;
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, Xxxxxxx and Xxxxxxx Trust are entering into a Software Sale Agreement
with Buyer (the "Software Sale Agreement") pursuant to which Xxxxxxx and Xxxxxxx
Trust have agreed to sell to Buyer and Buyer has agreed to purchase from Xxxxxxx
and Xxxxxxx Trust certain computer software programs, source codes and other
assets used by the Seller Entities in the Business, contingent upon the
occurrence of the Closing hereunder; and
WHEREAS, capitalized terms used and not otherwise defined herein shall
have the meanings set forth in Article X hereof.
NOW THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants, agreements, terms and conditions
contained herein, the parties hereto do hereby agree as follows:
ARTICLE I
SALE; CLOSING
1.1 Transfer of Assets. Subject to the terms and conditions set
forth in this Agreement, the Seller Parties hereby sell, assign, transfer and
deliver to Buyer the assets, rights, privileges, contracts and properties of the
Seller Parties, real or personal, tangible or intangible, absolute or continent,
wherever located, owned by one or more Seller Parties and used by any of them in
connection with the Business, except the Excluded Assets (the "Assets"),
including all of the following:
(a) The leasehold interest in real property held under the lease
dated December 30, 1999 between Lease Marketing, Ltd. and Xxxxxxx Commons LLC
for Suite 100 in Building D at 0000 Xxxxxxx Xxxxxxxxx, Xxxxxxxxx, Xxxxxxxxxx;
Asset Purchase Agreement
(b) All fixtures and improvements attached to the real property in
which Seller Parties have the leasehold interest referred to in Section 1.1(a)
and listed on Section 1.1(b) of the Seller Disclosure Schedule;
(c) All machinery, equipment, apparatus, furniture and fixtures,
materials, supplies, motor vehicles, computer hardware, office equipment, and
other equipment owned by a Seller Party including, without limitation, the
assets listed on Section 1.1(c) of the Seller Disclosure Schedule (excluding,
however, any leasehold improvements listed on Section 1.1(c) of the Seller
Disclosure Schedule at any real property other than the leasehold interest
referred to in Section 1.1(a)) ;
(d) All of Seller Parties' rights and interests arising under or in
connection with the Contracts listed on Section 1.1(d) of the Seller Disclosure
Schedule and the Backlog Contracts (collectively, the "Transferred Contracts")
including, without limitation, all of Seller Parties' rights, under (i) the
customer leases listed on said Schedule 1.1(d), (ii) the agreements listed on
Schedule 1.1(d) with employees and former employees of the Business restricting
such employees or former employees from competing with the Business or
soliciting customers of the Business and (iii) software licenses and other
agreements between any Seller Party and its customers, to repurchase, reacquire
or obtain the release of security interests filed against, the equipment,
computer hardware, and other personal property subject to such factored leases;
(e) Except as set forth in Section 1.2(e), Seller Parties' prepaid
expenses including, without limitation, those shown on the preliminary balance
sheet as of June 30, 2004 included as Section 1.1(e) of the Seller Disclosure
Schedule (the "Preliminary Balance Sheet"), together with any additions to such
prepaid expenses and subject to any reductions therefrom made or incurred by a
Seller Party in operating the Business in the ordinary course after the date of
such schedule through July 31, 2004, as such prepaid expenses may be finally
determined in accordance with Section 1.6;
(f) All of Seller Parties' rights and interests in any information
service systems and software used by Seller Parties in the ownership and
operation of the Business;
(g) All of Seller Parties' rights and interests in any sales data,
customer lists, information relating to customers or products, suppliers' names,
mailing lists, marketing materials, products and documentation and, if any,
advertising matter and all rights thereto relating to the Business;
(h) All of Seller Parties' Intellectual Property Rights and Licensed
Rights and any goodwill associated with the Business, including, but not limited
to all improvements, enhancements, updates and additions made by any employee of
any Seller Party in the course of such Person's employment to the software
licensed to the Seller Parties by Xxxxxxx;
(i) All of Seller Parties' books and records relating to the
Business, the customers thereof and the Rehired Employees;
(j) All of Seller Parties' transferable Approvals and Permits
relating to the Business;
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(k) As set forth in Section 1.1(k) of Seller Disclosure Schedule,
all of Seller Parties' accounts receivable relating to the Business shown on the
Preliminary Balance Sheet, together with any additions to such accounts
receivable and subject to any reductions thereof resulting from a Seller Party's
conduct of business in the ordinary course from the date of the Preliminary
Balance Sheet through July 31, 2004, as such accounts receivable may be finally
determined in accordance with Section 1.6;
(l) Any and all security deposits held by a Seller Party related to
any leasing of a Seller Party's property, including security deposits received
under leases of the Seller Parties' Intellectual Property and Licensed Rights;
(m) All proceeds received by any of the Seller Parties (including
judgments, indemnity payments, amounts received in settlement and payments under
any insurance policies) in respect of any Action, other than those Actions
listed on Section 1.1(m) of the Seller Disclosure Schedule, relating to the
Business to which any Seller Party is a party in any capacity that is based upon
or arises out of any event, dispute or other occurrence prior to the Effective
Date; and
(n) The Seller Entities' cash and all other assets relating to the
Business, which for the avoidance of doubt cash shall not be less than zero and
shall exclude checks written in excess of available cash balance, which shall be
deemed Excluded Liabilities.
1.2 Assets Not Transferred. The following assets, rights and
properties of Seller Parties are specifically excluded from the Assets and shall
be retained by Seller Parties (the "Excluded Assets"):
(a) The Purchase Price and Seller Parties' rights under this
Agreement;
(b) Seller Entities' articles of incorporation, corporate seals,
minute books, stock books and other corporate or comparable organizational
records having to do with the organization and capitalization of the Seller
Entities and all income Tax Returns and other records; provided, however, that
copies of such Tax Returns shall be provided to Buyer at the Closing and copies
of such other materials shall be provided to Buyer upon request;
(c) Any Equity Securities of a Seller Entity held by another Seller
Entity or Equity Securities of a Seller Entity held by such Seller Entity as
treasury securities;
(d) All of Seller Parties' insurance policies, contracts, credits,
reserves and other sources of funding with respect to any employee benefit
Plans, arrangements or agreements;
(e) Seller's prepaid expenses listed or described in Section 1.2(e)
of the Seller Disclosure Schedule as "Excluded" and Seller's security deposits
under leases for real property constituting Excluded Liabilities and deposits
with respect to utility services at the premises subject to such leases;
(f) Except for the agreements described in clause (ii) of Section
1.1(d), all employment agreements to which a Seller Party is a party; and
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(g) All assets that are neither (i) listed or described in Section
1.1, in the Seller Disclosure Schedule, in the Financial Statements or on the
Preliminary Balance Sheet, as the same may be adjusted pursuant to Section 1.6,
nor (ii) used by any Seller Party in the Business.
1.3 Assumption of Certain Liabilities. Buyer hereby assumes and
agrees to pay, perform and discharge when due, only the following liabilities
and obligations of Seller Parties (the "Assumed Liabilities"):
(a) Liabilities in respect of (i) the Seller Entities' customer
prepayments listed in Section 1.3(a)(i) of the Seller Disclosure Schedule and
(ii) repayment of security deposits under customer leases acquired pursuant to
Section 1.1(d)(i) owed to the Seller Entities' customers listed in Section
1.3(a)(ii) of the Seller Disclosure Schedule in the amount set forth in Section
1.5(a), in each case as set forth on the Preliminary Balance Sheet and as such
items may be finally determined in accordance with Section 1.6;
(b) Liabilities arising after July 31, 2004 under the lease referred
to in Section 1.1(a) and the Transferred Contracts; and
(c) Costs incurred and obligations arising after the Effective Date
under Backlog Contracts, including sales commissions payable in respect of such
Contracts. For avoidance of doubt, any out-of-pocket costs associated with the
installation of Transferred Contracts listed on Section 1.1(d) of the Seller
Disclosure Schedule that should have been categorized as Backlog Contracts,
whether or not arising prior to the Effective Date, shall be Excluded
Liabilities.
1.4 Non-Assumption of Other Liabilities. Except for liabilities and
obligations specifically assumed pursuant to and identified in Section 1.3
above, Buyer shall not assume, shall not take subject to and shall not be liable
for, any liabilities or obligations of any kind or nature, whether absolute,
contingent, accrued, known or unknown, of Seller Parties or any Affiliate of a
Seller Party (the "Excluded Liabilities"). Without limiting the generality of
the prior sentence, Excluded Liabilities shall include, without limitation:
(a) All Indebtedness of any Seller Party;
(b) All liabilities related directly or indirectly to Seller Party
indemnification obligations in existence as of July 31, 2004;
(c) All liabilities resulting from Actions and Orders arising out of
or related to the conduct of the Business prior to July 31, 2004, including,
without limitation, those actual, pending and threatened Actions set forth in
Section 2.2(l) of the Seller Disclosure Schedule;
(d) All liabilities attributable to any claim that the conduct of
the Business or the use of the Intellectual Property Rights or the Licensed
Rights infringes upon, misuses or misappropriates the Intellectual Property of
any Person.
(e) All liabilities arising out of or relating to the Excluded
Assets;
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(f) All liabilities for Taxes of the Seller Parties (i) imposed with
respect to the taxable periods or portions thereof ending on or before July 31,
2004, (ii) resulting from, relating to or arising out of or otherwise in
connection with the transactions contemplated by this Agreement, and (iii) any
income or gains Taxes arising from the sale of the Assets pursuant to this
Agreement;
(g) All liabilities and obligations resulting from, relating to or
arising out of any former operations of the Business that have been discontinued
or disposed of prior to the date of execution and delivery of this Agreement ;
(h) All liabilities and obligations to factors related to or arising
under any and all factoring agreements to which a Seller Party is party;
(i) All liabilities and obligations related to any Seller Party
self-funded insurance program;
(j) Liabilities arising out of or relating to the assertion or
attempted assertion of dissenters' rights, right of appraisal, or similar
rights, by any holder of Equity Securities of any Seller Entity;
(k) The Principals' Loans and any other Liabilities of any Seller
Entity to any holders of the Equity Securities of such Seller Entity;
(l) All liabilities and obligations (including, without limitation,
liabilities for compensation, wages, bonuses, sales commissions, licensing
commissions, vacation time and vacation pay, pay in lieu of vacation, severance
pay and benefits or liabilities under any of Seller Entities' Plans) relating to
current or former employees of Seller Entities arising on or before July 31,
2004 or under any employment agreement to which a Seller Party is a Party;
(m) All liabilities and obligations of any Affiliate of any of the
Seller Parties if such Affiliate is not also a Seller Party;
(n) All debts, liabilities or obligations whatsoever, that do not
arise out of or relate to the Business or that do not otherwise arise out of or
relate to the Assets; and
(o) Except as provided in Section 1.3(c), all debts, liabilities and
obligations whatsoever (including, without limitation, liabilities for payment
of sales commissions or ongoing monthly maintenance commissions) due as of July
31, 2004, including, without limitation, any such commissions in respect of
Contracts listed in Section 1.1(d) of the Seller Disclosure Schedule that have
been factored.
1.5 Purchase Price.
(a) Subject to the terms and conditions set forth in this Agreement,
the Buyer agrees to purchase and acquire the Assets from the Seller Parties for
a purchase price of $11,540,000 plus the assumption of the Assumed Liabilities,
payable as set forth in subsection (b) below (in the aggregate, the "Purchase
Price"). In addition, the purchase price for the assets to be purchased by Buyer
pursuant to the Software Sale Agreement, as set forth in such
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agreement, is $1,260,000, payable on the fourth anniversary of the Effective
Date, as set forth in the Software Sale Agreement. Buyer and the Seller Parties
confirm that the aggregate amount to be paid by Buyer to the Seller Parties for
all of the assets used in the Business, comprising the Assets to be acquired
hereunder and the assets to be acquired pursuant to the Software Sale Agreement,
is $12,800,000 (excluding assumed customer security deposits in the amount of
approximately $3,400,000). Such aggregate amount is referred to in this
Agreement as the "Consideration." The Consideration payable pursuant to this
Agreement and the Software Sale Agreement shall be subject to adjustment and
disbursed in accordance with Section 1.6 of this Agreement.
(b) The Purchase Price shall be payable as follows:
(i) $8,000,000 shall be payable at the Closing by means of
Buyer's deposit of a cash payment in such amount into the Disbursement
Account;
(ii) $1,000,000, $1,000,000 and $1,540,000 shall be payable on
the first, second and third anniversaries, respectively, of the Effective
Date. Each such payment shall be made by means of Buyer's deposit of a
cash payment in the required amount into the Disbursement Account on the
applicable anniversary of the Effective Date. Such funds shall be
disbursed from the Disbursement Account, (x) to pay all Closing Seller
Liabilities and Additional Pre-Closing Liabilities (each as defined in
Section 1.6 below) remaining unpaid on the applicable payment date
anniversary, (y) to the extent of funds remaining after such
disbursements, to pay the then outstanding balance on the Principal Loans,
and (z) to the extent of any remaining funds, to the Seller Entities. The
disbursements provided for clauses (y) and (z) of this Section 1.5(b)(ii)
shall be paid within seven (7) days after each anniversary of the
Effective Date. By their execution and delivery of this Agreement, the
Principals hereby waive and release their right to receive any interest on
the Principals' Loans accruing after July 31, 2004.
(iii) as of the Effective Date, Buyer shall assume the other
Assumed Liabilities.
(c) The parties confirm that the Purchase Price has been allocated
as fair value among the Seller Entities as follows:
(i) $970,000 to the Assets sold by LML Systems, Inc.;
(ii) $640,000 to the Assets sold by LML Asset Acquisition LLC;
(iii) $270,000 to the Assets sold by Wizard Acquisition LLC;
and
(iv) $9,660,000 plus the assumption of the Assumed Liabilities
to the Assets sold by Lease Marketing, Ltd.
1.6 Consideration Adjustments, Disbursement Account.
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(a) As promptly as practicable after July 31, 2004, Seller Parties
shall cause to be prepared a balance sheet as of July 31, 2004. Such balance
sheet shall be prepared from the Seller Entities' accounting books and records
on a basis consistent with the Preliminary Balance Sheet, and shall also reflect
any additional adjustments as may be deemed appropriate by Buyer for
presentation on an accrual basis of accounting in accordance with U.S. GAAP.
Seller Parties shall keep Buyer apprised of the status of the preparation of
such balance sheet and shall afford Buyer, its accounting personnel and outside
auditors or advisors unrestricted access to the Seller Parties' accounting and
other records to enable Buyer to determine the adjustments required to be made
thereto. The balance sheet as of July 31, 2004 shall be prepared by the
accounting firm of Kolnicki, Xxxxxxxxx and Worth LLP. Buyer agrees to make any
books and records required for the preparation of such balance sheet and
transferred to Buyer pursuant to Section 1.1 hereof available to such accounting
firm for purposes of creating the balance sheet. Upon completion of the balance
sheet as of July 31, 2004 by such accounting firm, it shall be provided to Buyer
for approval thereof. If Buyer elects not to accept such balance sheet, the
parties agree to work with the accountants in good faith to address Buyer's
concerns, provided that Buyer may only object to such statement on the basis of
a good faith, reasonable interpretation of GAAP, consistently applied. Buyer
shall use its reasonable commercial efforts to complete its review of such
balance sheet as promptly as practicable after receipt and to provide Seller
Parties with its approval thereof or objections thereto within thirty (30) days
after Buyer's receipt of such balance sheet. The balance sheet as of July 31,
2004, as finally adjusted and approved by Buyer in accordance with the foregoing
limitation, is referred to herein as the "Closing Balance Sheet."
(b) Upon Buyer's acceptance of the Closing Balance Sheet, the
portion of the Purchase Price payable in cash pursuant to Section 1.5(b)(i) (the
"Initial Cash Payment") shall be subject to adjustment as provided in this
Section 1.6.
(i) If the aggregate amount of the Seller Entities'
liabilities (excluding, for avoidance of doubt, the Principals' Loans) to
be paid out of the initial proceeds, as shown on the Closing Balance Sheet
(together, the "Closing Seller Liabilities") exceeds the portion of the
Purchase Price payable pursuant to Section 1.5(b)(i), Seller Parties shall
pay the amount of such excess to Buyer not more than 15 days after
completion of the Closing Balance Sheet by depositing such amount into the
Disbursement Account, provided, however, that if such excess amount is
less than $50,000, such payment shall be made to Buyer as an offset
against the payment due from Buyer to the Seller Parties as provided in
Section 1.6(c) or, if no such payment is due, as an offset pursuant to
Section 1.6(d).
(ii) If the portion of the Purchase Price payable pursuant to
Section 1.5(b)(i) exceeds the Closing Seller Liabilities, Buyer shall pay
the amount of such excess to the Seller Parties from the Disbursement
Account pursuant to Section 1.6(c).
(c) The Seller Parties hereby designate the Buyer as their
Disbursing Agent and direct Buyer to deposit the cash payments required to be
made by Buyer pursuant to Section 1.5(b)(i) and Section 1.5(b)(ii) into a
separate account to be established by Buyer as the Disbursement Account.
Contemporaneously with the execution and delivery of this Agreement and the
delivery of the instruments and documents required by Section 1.9(a) and Section
1.9(b),
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the Disbursing Agent shall effect payment to U.S. Bank of the amount due to said
bank as set forth in the payoff letter delivered pursuant to Section 1.9(a)(ix),
by wire transfer of immediately available funds to the account identified in
such payoff letter. Funds deposited pursuant to Section 1.5(b)(i) remaining in
the Disbursement Account after such payment to U.S. Bank and after any payment
to Buyer pursuant to Section 1.6(b)(i) (which Seller Parties expressly authorize
Buyer to pay to itself, if applicable) shall be disbursed to pay liabilities
shown on the Preliminary Balance Sheet (if the Disbursing Agent elects to pay
any such liabilities prior to agreement upon the Closing Balance Sheet) and to
pay Closing Seller Liabilities and other liabilities of the Seller Entities, in
each case in accordance with the procedures set forth herein. Such funds,
together with any interest earned thereon, shall be held by the Disbursing Agent
in the Disbursement Account until the date one hundred eighty (180) days
following Buyer's acceptance of the Closing Balance Sheet at which time the
funds in the Disbursement Account, together with the amount, if any, due from
Buyer to the Seller Parties pursuant to Section 1.6(b)(ii), less (i) unpaid
Closing Seller Liabilities, (ii) unpaid Additional Pre-Closing Liabilities (as
defined below), including any such unpaid Additional Pre-Closing Liabilities
that are under discussion between Xxxxxxx and the Disbursing Agent or between
Xxxxxxx and the Person asserting the claim (which shall be retained in the
Disbursement Account in the full amount of the asserted claim), (iii) amounts
which Xxxxxxx, on behalf of the Seller Parties, shall reasonably demonstrate to
be sufficient to provide for real property leases constituting Excluded
Liabilities, other commitments existing as of July 31, 2004 and other contingent
Excluded Liabilities for which a claim is made, and (iv) any amount due to Buyer
pursuant to Section 1.6(b)(i), shall be released to the Seller Parties in
accordance with the allocation established pursuant to Section 1.6(c). While it
holds funds in the Disbursement Account pursuant to the preceding sentence, the
Disbursing Agent shall apply such funds from time to time only toward payments
to the Seller Parties or toward payment of the Closing Seller Liabilities and
the Additional Pre-Closing Liabilities (as defined below). "Additional
Pre-Closing Liabilities" shall mean claims by Persons purporting to be creditors
of one or more Seller Entities in respect of services performed for or products
delivered to any of them prior to July 31, 2004, including up to $200,000 of
monthly maintenance commissions paid by Buyer to Rehired Employees prior to the
first anniversary of the Effective Date with respect to customer leases
constituting Transferred Contracts, commitments and contingent liabilities
existing as of July 31, 2004, or any other debt or liability of a Seller Entity
that arose prior to July 31, 2004, which claims have been received by Buyer,
forwarded to Xxxxxxx and not identified by Xxxxxxx as paid by a Seller Entity or
objected to by Xxxxxxx within ten (10) business days of his receipt of such
notice. Any claim by Xxxxxxx of payment of an Additional Pre-Closing Liability
shall be accompanied by evidence of such payment satisfactory to the Disbursing
Agent, acting reasonably. If Xxxxxxx objects to the payment of an Additional
Pre-Closing Liability, then Xxxxxxx and the Disbursing Agent shall work together
until such Additional Pre-Closing Liability is resolved to their mutual
satisfaction and the satisfaction of the party asserting such Additional
Pre-Closing Liability. If Xxxxxxx and the Disbursing Agent do not reach an
agreement regarding such Additional Pre-Closing Liability within ninety (90)
days, such Additional Pre-Closing Liability shall be paid from the Disbursement
Account.
(d) If the funds in the Disbursement Account are insufficient to pay
all of the Closing Seller Liabilities and all Additional Pre-Closing Liabilities
that become payable in accordance with Section 1.6(c), Buyer may pay such
amounts by depositing into the Disbursement Account an amount equal to the
amount of such additional liabilities, such
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additional deposited funds shall be disbursed from the Disbursement Account to
pay such additional liabilities, and the payments due to any Seller Party on or
in respect of the Principals' Loans, and/or under the Software Sale Agreement,
and/or as Additional Consideration shall be reduced to the extent necessary by
the aggregate amount of all such additional deposits by Buyer. Prior to making
any additional deposit into the Disbursement Account pursuant to this Section
1.6(d) that would reduce a payment (i) of the Principals' Loans, (ii) under the
Software Sale Agreement or (iii) of Additional Consideration, Buyer shall notify
Xxxxxxx of such proposed payment and shall provide Xxxxxxx with twenty (20)
Business Days in which to settle the liability in question for an amount that is
less than the amount proposed to be paid by Buyer, as Disbursing Agent. Upon the
expiration of such twenty (20) Business Days, the Disbursing Agent may pay such
liability in accordance with this Section 1.6(d).
(e) Seller Parties acknowledge that the provisions for payments from
the Disbursement Account (including payments made from additional deposits
pursuant to Section 1.6(d) hereof) are being established solely as a procedure
for application of the Consideration (and, if necessary, the Additional
Consideration) to pay the Closing Seller Liabilities and the Additional
Pre-Closing Liabilities, and that the parties do not intend that the Buyer
assume, nor shall such payments constitute Buyer's assumption of, any Excluded
Liabilities, and that nothing in any of Sections 1.6(c) and 1.6(d), and no
payment by Buyer pursuant to Section 1.6(d) or Section 1.6(e) shall alter the
status of any Additional Pre-Closing Liabilities as "Excluded Liabilities" for
all purposes of this Agreement. Seller Entities shall pay all Closing Seller
Liabilities and Additional Pre-Closing Liabilities remaining unpaid at the time
of any disbursement to them from the Disbursement Account and shall not make any
payment of interest, principal or any sum due on the Principals' Loans prior to
payment of all Closing Seller Liabilities and Additional Pre-Closing
Liabilities.
(f) If, at any time during the six (6) months following July 31,
2004, Buyer repurchases any Transferred Contract that a Seller Party previously
sold to a factor or other lender (or from any such Person's assignee or
successor in interest as owner of a Contract to be repurchased), the
installments payable (x) pursuant to Section 1.5(b) of this Agreement on the
first, second and third anniversaries of the Effective Date and, if necessary,
(y) under the Software Sale Agreement and (z) if necessary, as Additional
Consideration under Section 1.7(b) and 1.7(c) on the third and fourth
anniversaries, respectively, of the Effective Date, shall be reduced by the
Buyout Set-off Amount. For purposes of this Agreement the "Buyout Set-off
Amount" shall be the aggregate amount paid by Buyer from the Effective Date
through the last date of such six-month period to repurchase factored Contracts,
including amounts paid to repurchase the equipment leased pursuant to such
Contracts and the retail value of other products Buyer or its Affiliates may
provide to replace such equipment, together with any payments made by Buyer to
the customers party to such repurchased Contracts in connection with the
termination thereof or settlement of such customers' claims thereunder. Payments
in respect of repurchased Contracts shall reduce amounts due under this
Agreement or under the Software Sale Agreement due on the first, second, third
and fourth anniversaries of the Effective Date pursuant to this Section 1.6(f)
only if such repurchases are (i) pursuant an option or other right held by a
factor or lender to require Buyer to repurchase Contracts, (ii) pursuant to
written consent given by Xxxxxxx or (iii) related to problems related to the
sale or lease of hardware or software under the repurchased Contract that
occurred prior to the Effective Date and Buyer is continuing to provide
maintenance under such Contract. Amounts paid by Buyer to repurchase
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Contracts solely to enable Buyer to terminate a factoring agreement or solely to
facilitate execution of a new Contract between the customer under the Contract
and Buyer shall not be included in any computation of the Buyer Set-off Amount.
Prior to repurchasing any Contract other than in accordance with the preceding
clauses (i) or (ii), Buyer shall consult with Xxxxxxx, as representative of the
Seller Parties, regarding the necessity or desirability of effecting such
purchase.
1.7 Additional Consideration. In addition to the Purchase Price,
Buyer shall make additional payments for the Assets (the "Additional
Consideration") to the extent required by this Section 1.7.
(a) Seller Parties jointly and severally represent and warrant that
Section 1.7(a) of the Seller Disclosure Schedule contains a complete and
accurate list of those Dealers who are licensees of LeaseLink lease comparison
tool 4.5, 6.0, or Direct (referred to collectively as "LeaseLink" and, for
avoidance of doubt, excluding "GuestTrack," "Wizard," and "Forms by Superior" or
any other product of the Seller Entities) Dealers (collectively, the "Seller
Rooftops") including (i) the number of LeaseLink licenses held by each such
Seller Rooftop and (ii) the unique address of such Dealer. Except as disclosed
in Section 1.7(a) of the Seller Disclosure Schedule, none of the Seller Rooftop
licenses has been sold, transferred, factored or otherwise disposed of. The
terms of each factored Seller Rooftop license shown on Section 1.7(a) of the
Seller Disclosure Schedule is coterminous with or exceeds the duration of the
agreement under which such license was factored. As soon as practicable after
July 31, 2004, Seller Parties shall prepare a revised Schedule 1.7(a) that shall
contain a complete and accurate list of Seller Rooftops as of July 31, 2004,
which shall be subject to review and approval by Buyer, such approval not to be
unreasonably withheld.
(b) If the aggregate number of Seller Rooftops together with any
Dealers purchasing any successor product to LeaseLink or product(s) offering
substantially equivalent replacement functionality to LeaseLink from Buyer or an
Affiliate of Buyer (collectively, the "LeaseLink Dealers") of the Seller
Entities and the Buyer on the third anniversary of the Effective Date, including
new Dealers and Dealer renewals during such three-year period, net of Dealers
which are cancelled, terminated, abandoned, bought out or expire without renewal
during such period and excluding Dealers that become such through acquisitions
by Buyer or any of its Affiliates of any assets, shares or business other than
the Assets, is greater than the number of LeaseLink Dealers on July 31, 2004 as
set forth on Schedule 1.7(a) of the Seller Disclosure Schedule, subject to
adjustment within thirty (30) days of July 31, 2004 (such greater number of
LeaseLink Dealers being the "Incremental Third Year Dealers"), the Buyer will
pay the Seller Parties an amount equal to the product of $2,000.00 and the
number of Incremental Third Year Dealers.
(c) If the aggregate number of LeaseLink Dealers of the Seller
Entities and the Buyer on the fourth anniversary of the Effective Date is
greater than such aggregate number of LeaseLink Dealers on the third anniversary
of the Effective Date, including new Dealers and Dealer renewals during such
year, net of Dealers which are cancelled, terminated, abandoned, bought out or
expire without renewal during such year and excluding Dealers that become such
during such year through acquisitions by Buyer or any of its Affiliates of any
assets, shares or business other than the Assets (such greater number of
LeaseLink Dealers being
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10
the "Incremental Fourth Year Dealers"), the Buyer will pay the Seller Parties an
amount equal to the product of $2,000.00 and the number of Incremental Fourth
Year Dealers.
1.8 The Closing. All deliveries required under Section 1.9 in
connection with the Closing of the transactions provided for in this Agreement
shall be effected in New York, New York, at the offices of O'Melveny & Xxxxx
LLP, Times Square Tower, 7 Times Square, New York, New York (unless the parties
hereto otherwise agree in writing) at 10:00 a.m. on July 30, 2004, or at such
other time and place as the parties may agree. The foregoing notwithstanding,
and notwithstanding the payment to U.S. Bank required by Section 1.6(a), Buyer's
acquisition of the Assets and its assumption of the Assumed Liabilities shall be
effective as of 12:01 a.m. on August 1, 2004 (the "Effective Date").
1.9 Conveyances and Deliveries at the Closing.
(a) Deliveries by Seller Parties. Contemporaneously with the
execution and delivery of this Agreement, Seller Parties shall deliver or cause
to be delivered to Buyer the following:
(i) this Agreement;
(ii) a xxxx of sale and assignment, substantially in the form
of Exhibit A hereto duly executed by Seller Parties, conveying to Buyer
valid title to all tangible assets which are a part of the Assets and
valid title to all intangible assets which are a part of the Assets, free
and clear of all Encumbrances;
(iii) an assignment, fully executed by Lease Marketing, Ltd.
in recordable form assigning to Buyer the leasehold interest in real
property referred to in Section 1.1(a) in substantially the form of
Exhibit B-1;
(iv) an assignment and assumption agreement to effectuate
assignment of the Contracts described in Section 1.1(d), in substantially
the form of Exhibit B-2;
(v) for any Intellectual Property Rights, the assignment of
which is required or permitted to be recorded in the U.S. Patent and
Trademark Office, the U.S. Copyright Office or a similar office or
authority of any foreign jurisdiction, duly executed assignments of such
Intellectual Property Rights in recordable form insubstantially the form
of Exhibits E-1 and E-2;
(vi) the affidavit or certificate as to non-foreign status of
each Seller Entity required by Section 2.2(h);
(vii) such other instruments of transfer reasonably requested
by Buyer to transfer to and vest in Buyer all of Seller Parties' right,
title and interest in and to the Assets;
(viii) copies of resolutions duly adopted by the Board of
Directors or the Person or Persons exercising similar authority and the
shareholders or
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11
members of each of the Seller Entities, authorizing and approving the
Seller Entities' performance of the transactions contemplated hereby and
the execution and delivery of this Agreement and the documents described
herein, certified as true and of full force;
(ix) all Approvals from third parties as are required to
consummate the transactions contemplated hereby (including, without
limitation, a payoff letter from U.S. Bank, N.A. in form satisfactory to
Buyer and releases of the liens and security interests granted to such
bank by the Seller Entities);
(x) [intentionally left blank];
(xi) the opinion of counsel referred to in Section 4.1(f);
(xii) one or more counterparts of the Transition Services
Agreement, duly executed by the Seller Entities in substantially the form
of Exhibit F;
(xiii) one or more counterparts of the Software Sale
Agreement, duly executed by Xxxxxxx, Xxxxxxx Trust and Lease Marketing,
Ltd.;
(xiv) one or more counterparts of any employment or consulting
agreement offered to a Principal, on or prior to the date of the execution
and delivery of this Agreement in substantially the form of Exhibit D-1 or
D-2, as the case may be, duly executed by the Principal or Principals
named in such Agreement or Agreements;
(xv) any documents effecting the changes to the names of the
Seller Entities required to be delivered by Section 3.8, duly executed
(and acknowledged where acknowledgement is a condition to filing or
recordation) by the applicable Seller Party;
(xvi) the security deposits to be acquired pursuant to Section
1.1(l); and
(xvii) such other documents and instruments as are required
pursuant to this Agreement or as may reasonably be requested by Buyer or
its counsel.
(b) Deliveries by Buyer. Contemporaneously with the execution and
delivery of this Agreement, Buyer shall deliver or cause to be delivered the
following:
(i) this Agreement;
(ii) the name and address of the bank at which the
Disbursement Account has been established, together with confirmation of
Buyer's deposit into the Disbursement Account of the cash deposit required
by Section 1.5(b)(i);
(iii) assignment and assumption agreements substantially in
the forms of Exhibits B-1 and B-2;
(iv) the officer's certificate referred to in Section 4.2(d);
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12
(v) one or more counterparts of the Transition Services
Agreement, duly executed by Buyer;
(vi) one or more counterparts of the Software Sale Agreement,
duly executed by Buyer;
(vii) one or more counterparts of the any employment or
consulting agreement offered to a Principal on or prior to the date of the
execution and delivery of this Agreement, duly executed by Buyer;
(viii) copies of resolutions duly adopted by the Board of
Directors or the Person or Persons exercising similar authority of Buyer,
authorizing and approving the Buyer's performance of the transactions
contemplated hereby and the execution and delivery of this Agreement and
the documents described herein, certified as true and of full force;
(ix) the opinion of counsel referred to in Section 4.2(e);
(x) such other documents and instruments as are required
pursuant to this Agreement or as may reasonably be requested by a Seller
Party or its counsel.
(c) Physical Delivery of Tangible Assets. To the extent not actually
delivered on the date hereof and not addressed by the Transition Services
Agreement, the Seller Entities shall effect physical delivery of the tangible
assets included in the Assets to Buyer by providing Buyer with physical access
to the locations of such Assets.
(d) License Termination. The Software License Agreement dated
November 8, 2000 between Xxxxxxx and Lease Marketing, Ltd., as amended or
supplemented, is hereby terminated.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties by Buyer. Buyer represents and
warrants to Seller Parties, as of the date of the execution and delivery of this
Agreement, as follows:
(a) Organization and Related Matters. Buyer is a corporation duly
organized, validly existing and in good standing under the Laws of Delaware.
Buyer has all necessary corporate power and authority to carry on its business
as now conducted. Buyer has the necessary corporate power and authority to
execute, deliver and perform this Agreement and consummate the transactions
contemplated hereby.
(b) Authorization. The execution, delivery and performance of this
Agreement by Buyer have been duly and validly authorized by the board of
directors of Buyer and by all other necessary corporate action on the part of
Buyer. This Agreement constitutes the legal, valid and binding obligation of
Buyer, enforceable against Buyer in accordance with its
Asset Purchase Agreement
13
terms except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar Laws and equitable principles
relating to or limiting creditors' rights generally.
(c) No Conflicts. The execution, delivery and performance of this
Agreement by Buyer will not violate the provisions of, or constitute a breach or
default whether upon lapse of time and/or the occurrence of any act or event or
otherwise or require any Approval under (1) the charter documents or by-laws of
Buyer, (2) any Law to which Buyer is subject (provided that appropriate
regulatory Approvals are received as contemplated by Section 3.4) or (3) any
material Contract to which Buyer is a party.
(d) No Brokers or Finders. No agent, broker, finder or investment or
commercial banker, or other Person or firm engaged by or acting on behalf of
Buyer or its Affiliates in connection with the negotiation, execution or
performance of this Agreement or the transactions contemplated by this
Agreement, is or will be entitled to any broker's or finder's or similar fees or
other commissions as a result of this Agreement or such transactions.
(e) Legal Proceedings. There is no Order or Action pending or to the
best knowledge of Buyer, threatened against Buyer that individually or when
aggregated with one or more other Orders or Actions has or might reasonably be
expected to have a material adverse effect on Buyer's ability to perform this
Agreement.
2.2 Representations and Warranties by Seller Parties. Each of the
Seller Parties represents and warrants, jointly and severally, to Buyer, as of
the date hereof and as of the date of the execution and delivery of this
Agreement, as follows:
(a) Organization, etc. Each Seller Entity that is a corporation is
duly organized, validly existing and in good standing under the Laws of its
state of incorporation. Each Seller Entity that is a limited liability company
is duly formed and validly existing under the laws of its state of formation.
Section 2.2(a) of the Seller Disclosure Schedule correctly sets forth each
jurisdiction in which each Seller Entity is qualified or licensed to do business
as a foreign Person. Each Seller Party that is a corporation has all necessary
corporate power and authority and each Seller Party that is a limited liability
company has all necessary power under applicable law, its certificate of
formation and operating agreement, in each case to own its properties and assets
and to carry on its businesses as now conducted and is duly qualified or
licensed to do business as a foreign corporation or foreign limited liability
company in good standing in all jurisdictions in which the character or the
location of the assets owned or leased by such Seller Party or the nature of the
business being conducted by such Seller Party requires licensing or
qualification, except where the failure to be so qualified or licensed is not
and will not be material to the Business. Each Seller Party has the necessary
power and authority to execute, deliver and perform this Agreement and
consummate the transactions contemplated hereby. Section 2.2(a) of the Seller
Disclosure Schedule correctly lists the current directors and executive officers
(or Persons performing similar functions) of each Seller Entity. True, correct
and complete copies of the charter documents of each Seller Party as in effect
on the date hereof have been delivered to Buyer. No Seller Party is a registered
or reporting company under the Exchange Act.
Asset Purchase Agreement
14
(b) Authorization. The execution, delivery and performance of this
Agreement by each Seller Entity and the Xxxxxxx Trust have been duly and validly
authorized by the board of directors, trustees, or the Person or Persons
performing similar functions, and the shareholders or members of each Seller
Entity and by all other necessary corporate or other action on the part of each
Seller Entity and such Seller Entity's shareholders or members. This Agreement
constitutes the legal, valid and binding obligation of each Seller Party,
enforceable against such Seller Entity in accordance with its terms, except as
such enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar Laws and equitable principles relating to or
limiting creditors' rights generally.
(c) Non-Contravention. Except as set forth in Section 2.2(c)(i) of
the Seller Disclosure Schedule, the execution and delivery of this Agreement by
each Seller Party and the consummation of the transactions contemplated hereby
will not (i) violate the provisions of, or constitute a breach or default
whether upon lapse of time and/or the occurrence of any act or event or
otherwise under (A) the charter documents or by-laws of any Seller Party, (B)
any Law to which any Seller Party is subject (provided that all required
regulatory Approvals are received as contemplated by Section 3.4) or (C) any
Material Agreement or any material Contract of any Seller Party or to which any
of the Assets is subject or (ii) result in the imposition of any Encumbrance
against any of the Assets. Without limiting the generality of the foregoing,
pursuant to Article XVIII, paragraphs C and D, of the Xxxx Xxxxxxx Declaration
of Trust dated October 22, 2002, Xxxxxxx, as grantor and beneficiary of the
Xxxxxxx Trust, hereby approves the execution and delivery of this Agreement by
the Xxxxxxx Trust.
(d) Consents, etc. As of the date of the execution and delivery of
this Agreement, each Seller Party has obtained all Permits, Orders and Approvals
of any Governmental Entity or any other Person necessary for the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby. Section 2.2(d) of the Seller Disclosure Schedule lists all such Permits,
Orders and Approvals required to be obtained by Seller Parties in order to
execute and deliver this Agreement and consummate the transactions contemplated
hereunder.
(e) Capital Stock and Securities.
(i) Section 2.2(e)(i) of the Seller Disclosure Schedule sets
forth the number and class of each of the authorized, issued and outstanding
shares of capital stock or other Equity Securities of each Seller Entity and a
list of the holders of all such Equity Securities of all classes. On the date of
the execution and delivery of this Agreement, all of such outstanding shares of
capital stock or other Equity Securities are validly issued, fully paid and
non-assessable, were issued in conformity with applicable Law, and are owned of
record and beneficially by the Persons listed on Section 2.2(e)(i) of the Seller
Disclosure Schedule, free and clear of any and all Encumbrances.
(ii) No Seller Party has any outstanding commitments to issue
or sell any Equity Securities, and no securities or obligations evidencing any
such right are outstanding. Except as set forth in Section 2.2(e)(ii) of the
Seller Disclosure Schedule, there are no outstanding obligations, written or
otherwise, of any shareholder of any Seller Party to repurchase, redeem or
otherwise acquire any Equity Securities. There are no preemptive rights
Asset Purchase Agreement
15
in respect of any Equity Securities of any Seller Party. Any Equity Securities
which were issued and reacquired by any Seller Party were so reacquired (and, if
reissued, so reissued) in compliance with all applicable Laws, and no Seller
Party has any outstanding obligation or liability with respect thereto. Except
for the companies identified in Section 2.2(e)(iii) or as set forth in Section
2.2(e)(ii) of the Seller Disclosure Schedule, (A) Seller Entities have no
Subsidiaries, and no Seller Party holds any Equity Securities of any other
Person that owns or controls any of the Assets or through which such Seller
Party conducts any portion of the Business and (B) the Assets do not include any
Indebtedness or Equity Securities of any Person.
(iii) Since their respective dates of incorporation or
formation through the date hereof, neither LML Capital Corp. nor Lease Marketing
LLC (the "Dormant Companies") has conducted any business or incurred any
liabilities, and none of the Seller Parties has caused any of the Dormant
Companies to conduct any business or incur any liabilities. The Dormant
Companies do not own or lease any assets or properties of any kind whatsoever,
and Digerati Corp. does not own, lease or have any interest whatsoever in any of
the Assets or any asset or property of any kind used or useful in conducting the
Business.
(f) Financial Statements.
(i) Seller Parties have heretofore delivered to Buyer the
audited consolidated financial statements of each Seller Entity for each
of the years ended December 31, 1999 through 2002, accompanied by the
report of Kolnicki, Xxxxxxxxx and Worth LLP, independent accountants,
thereon (collectively, the "Audited Financial Statements") together with
unaudited consolidated financial statements of the Seller Entities as of
and for the twelve-month period ended December 31, 2003 and as of and for
the six-month period ended June 30, 2004, in each case including a balance
sheet as of each such date and the related statements of income and
retained earnings and cash flows for each of the respective periods then
ended (collectively, the "Unaudited Financial Statements" and, together
with the Audited Financial Statements, the "Financial Statements"). The
Financial Statements include the assets, liabilities, results of
operations and cash flows, if any, of LML Systems, Inc., which is wholly
owned by Xxxx Xxxxxxx. Except as noted therein, and (a) except for the
items which Section 3.12 requires to be restated in the Audited Financial
Statements or adhered to when the Unaudited Financial Statements are
audited, as the case may be, and (b) except that the Unaudited Financial
Statements do not include footnote disclosures, as required by GAAP and
are subject to normal year end adjustments (which will not be material,
individually or in the aggregate) consistent with past practice, all of
the Financial Statements (i) have been prepared from the books and records
of the Seller Entities, and (ii) fairly present the financial condition,
results of operations and cash flows of the Seller Entities as of the
respective dates and for the respective periods thereof in accordance with
GAAP consistently applied. Seller Entities have made available to Buyer
copies of each management letter or other letter delivered to Seller
Entities by their auditors in connection with such Financial Statements or
relating to any review by its auditors of the internal controls of Seller
Entities during the five-year period ended December 31, 2003, or
thereafter. Since December 31, 2003, there has been no change in any of
the significant accounting policies, practices or procedures of Seller
Entities, except as disclosed in the Financial Statements. Seller Entities
have no debts, liabilities or
Asset Purchase Agreement
16
obligations, whether accrued, absolute, contingent or otherwise, whether
currently due or to become due, except those (A) set forth in the
Financial Statements in the amounts set forth therein, (B) incurred since
June 30, 2004 in the ordinary course of business consistent with past
practice and in amounts that are not material, individually or in the
aggregate, or (C) disclosed in Section 2.2(f)(i) of the Seller Disclosure
Schedule.
(ii) The Seller Entities' accounts receivable shown in the
Financial Statements and on the Preliminary Balance Sheet represent sales
actually made or services actually rendered by Seller Entities in the
ordinary course. The amount of such accounts receivable in the Financial
Statements and on the Preliminary Balance Sheet reflects a reserve for
uncollectible accounts which is adequate and was determined in accordance
with GAAP and Seller Entities' past practices and collection experience.
Such accounts receivable represent products and services furnished to
customers of the Seller Entities on net 30 days payment terms and, to the
knowledge of the Seller Parties, are collectible in the ordinary course of
business, in the net amount shown in the Financial Statements and on the
Preliminary Balance Sheet within thirty (30) days of the Effective Date.
(iii) Since December 31, 2002, (A) the Business has been
conducted in the ordinary course consistent with past practice; and (B)
there has not been (x) any change, event or circumstance which has had or
would be reasonably expected to have a material adverse effect on any
Seller Parties, the Business or the Assets, or (y) any material damage,
destruction or other loss with respect to any Asset, whether or not
covered by insurance.
(iv) The Preliminary Balance Sheet has been prepared from the
Seller Entities' books and records of account and is a true and complete
statement, in all material respects, of those assets and liabilities of
Seller Entities included therein.
(g) Government Authorizations and Compliance with Laws.
(i) Section 2.2(g)(i) of the Seller Disclosure Schedule
contains a complete and accurate list of all material (including all
federal and state) Permits held by Seller Parties which are the only such
Permits necessary to carry on the Business and operate the Assets. Except
as set forth in Section 2.2(g)(i) of the Seller Disclosure Schedule, all
such Permits are fully assignable and will remain in full force and effect
for the benefit of Buyer immediately after giving effect to the
transactions contemplated hereby and no notice or additional filings must
be made in connection therewith.
(ii) Except as set forth in Section 2.2(g)(ii) of the Seller
Disclosure Schedule, the Business has been operated at all times and the
Principals have acted with respect to the Seller Entities in compliance
with all applicable Laws and Orders. Except as set forth in Section
2.2(g)(ii) of the Seller Disclosure Schedule, for the last five (5) years
no notice has been received by any Seller Party and no investigation or
review is pending or, to the knowledge of any Seller Party, threatened by
any Governmental Entity with respect to (A) any alleged violation by any
Seller Party of any Law, or (B) any alleged failure to have any Permit
required in connection with the
Asset Purchase Agreement
17
operation of the Business. Except as set forth in Section 2.2(g)(ii) of
the Seller Disclosure Schedule, no Seller Party has conducted any internal
investigation concerning any alleged violation of any Law applicable to
Seller Parties or the Business (regardless of the outcome of such
investigation) on the part of the Seller Parties or any of their
Affiliates or any of their respective officers, directors, employees,
agents or representatives.
(h) Tax Matters. (i) all Returns required to be filed by Seller
Parties on or before the date of the execution and delivery of this Agreement
have or will have been timely filed, such Returns were true, correct and
complete and all Taxes, whether or not shown as due and payable on such Returns
have been or will be paid by Seller Parties when required by law; (ii) no
deficiencies or assessments for any Taxes have been asserted in writing or
assessed against Seller Parties that remain unpaid and that individually or in
the aggregate are material to the Business; (iii) Seller Parties have withheld
all required federal, state and local payroll taxes relating to the Business and
has remitted or will remit all amounts required to be remitted to the
appropriate taxing authorities; (iv) there are no Encumbrances upon any of the
Assets that arose in connection with any failure (or alleged failure) to pay or
withhold any Taxes; (v) there are no pending examinations or issues of which
Seller Parties have been notified in writing with respect to Taxes of Seller
Parties or any pending Tax litigation of Seller Parties; (vi) no claim has ever
been made by any taxing authority in a jurisdiction in which Parties do not file
Returns that any Seller Party is or may be subject to taxation by that
jurisdiction; and (vii) No Seller Party is a "foreign person" within the meaning
of Section 1445(b)(2) of the Code and each shall provide an appropriate
affidavit or certificate for purposes of Section 1445(b)(2) of the Code.
(i) Title to and Condition of Properties; Absence of Liens and
Encumbrances, etc.; Sufficiency of Assets. (i) Section 1.1(b) of the Seller
Disclosure Schedule accurately and completely lists all fixtures and
improvements attached to the real property leasehold interest referred to in
Section 1.1(b) of this Agreement. Section 1.1(c) of the Seller Disclosure
Schedule sets forth a list that is accurate and complete in all material
respects of all machinery, equipment, apparatus, furniture and fixtures,
materials, supplies, motor vehicles, computer hardware, office equipment, other
equipment and other tangible assets used in the Business. Section 2.2(i) of the
Seller Disclosure Schedule designates any leasehold interests in real property
and includes an address for each such leasehold interest in real property used
in the Business. No Seller Party holds fee simple title to any real property
(except in the case of Principals' ownership of residential private property
that is not included in the Assets.) Each Seller Party has good and marketable
title (or valid leasehold interests in all properties held under lease) to all
its property and assets (real and personal, tangible and intangible), free and
clear of all Encumbrances, except for (i) Encumbrances consisting of liens for
Taxes not yet due or matters otherwise described in Section 2.2(i) of the Seller
Disclosure Schedule, and (ii) Encumbrances on assets and properties not material
to the Business and that do not interfere with the use of such Assets in the
Business, or (iii) Encumbrances on equipment leases and the related leased
equipment which have been factored by the Company pursuant to factoring
arrangements identified on Section 2.2(j) of the Seller Disclosure Schedule.
Each Seller Party has all rights, power and authority to sell, convey, assign,
transfer and deliver its Assets to Buyer in accordance with the terms of this
Agreement. Except for those properties or assets acquired since the date of the
Preliminary Balance Sheet, all properties and assets (real, personal and mixed,
tangible and intangible) used in the Business are reflected in the Preliminary
Balance
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18
Sheet or the Seller Disclosure Schedule. Such assets include all Permits or
other rights with respect to any of the foregoing. All Assets of Seller Parties
are in a good state of maintenance and repair (except for ordinary wear and
tear) and are adequate for the Business. All material leasehold properties held
by any Seller Party as lessee are held under valid, binding and enforceable
leases. There is no pending, or to the best knowledge of each Seller Party,
threatened Action that would materially interfere with the quiet enjoyment of
any such leasehold by any Seller Party or after the Effective Date by Buyer.
(ii) Sufficiency. The Assets, together with the Intellectual
Property Rights to be acquired by Buyer pursuant to the Software Sale
Agreement, constitute all of the tangible and intangible assets that are
required to conduct the Business in a manner, and at levels of activity
and productivity, consistent with the manner and levels at which such
Business is currently conducted by Seller Parties and constitute all of
the assets actually used by the Seller Parties in the conduct of the
Business.
(j) Material and Customer Agreements. (i) Section 2.2(j) of the
Seller Disclosure Schedule lists every Material Agreement to which any Seller
Party is a party or by which any Seller Party or any of the Seller Parties'
properties or assets (real, personal or mixed, tangible or intangible) is bound,
identified pursuant to the categories of Material Agreements listed below in
this Section 2.2(j). Unless otherwise so noted on Section 2.2(j) of the Seller
Disclosure Schedule, each such agreement was entered into in the ordinary course
of business. As used herein, the term "Material Agreement" shall mean any
Contract to which a Seller Entity is a party or by which a Seller Entity or any
of its properties or assets (real, personal or mixed, tangible or intangible) is
bound, or to which a Principal is a party or by which any of such Principal's
assets are bound if, in either such case, such Contract relates to the Business
or such assets are included in the Assets, which (a) obligates any party thereto
after the date hereof to make aggregate payments of more than $10,000, (b) has
an unexpired term as of the date hereof in excess of six (6) months, (c) is a
lease or other contract relating to rights in real property, (d) is a management
service, consulting or any other similar type contract, (e) is a license of
Intellectual Property, (f) contains any provision restricting the transfer of
any Asset or creating any other Encumbrance on any Asset, (g) constitutes a
factoring arrangement, provides for the extension of credit or is otherwise a
source of financing for the Business, (h) provides for a guaranty or indemnity
by a Seller Party, (i) grants a power of attorney, agency or similar authority
to another Person, (j) contains a right of first refusal, (k) contains a right
or obligation of or to any shareholder or any director, officer, Affiliate or
Associate of a Seller Party, (l) constitutes an employment agreement or a
collective bargaining agreement or provides for severance benefits to any
officer, director or employee, (m) involves a customer or group of related
customers whose business accounts for more than 1% of the Seller Entities'
collective revenues for calendar year 2003 or represents a Contract upon which
the Business is substantially dependent or which is otherwise material to the
Business, (n) contains any provision pursuant to which a Seller Party (or any
successor) will be obligated to make any payment or provide any benefit or
service to any Person as a result of the consummation of the transactions
contemplated hereby (either alone, upon the occurrence of an act or event, the
lapse of time or any combination thereof), or (o) was not made in the ordinary
course of business. No breach or default, alleged breach or default, or event
which would (with the passage of time, notice or both) constitute a breach or
default under any Material Agreement by a Seller Party or,
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19
to the best knowledge of Seller Parties, any other party or obligor with respect
thereto, has occurred or, as a result of this Agreement, performance hereof or
consummation of the transactions contemplated hereby or otherwise, will occur.
Consummation of the transactions contemplated by this Agreement will not (and
will not give any Person a right to) terminate or modify any rights of, or
accelerate or augment any obligation of, a Seller Party under any Material
Agreement or result in the creation of any Encumbrances thereunder. Each
Material Agreement is valid and binding in accordance with its terms. There are
no agreements or options to sell or lease any of the properties or assets (real,
personal or mixed, tangible or intangible) of a Seller Party. The Seller Parties
have delivered to Buyer true and complete copies of each Material Agreement.
Section 2.2(j) of the Seller Disclosure Schedule also includes a true and
complete list of all currently effective Contracts constituting leases with the
Seller Entities' Dealer customers, and correctly sets forth the identity of each
such Dealer, the monthly payment under each such lease, whether the lease has
been factored, and the term of such lease. The term of each factored lease shown
on Section 2.2(j) of the Seller Disclosure Schedule is coterminous with or
exceeds the duration of the agreement under which such lease was factored. None
of the Backlog Contracts has been factored by any Seller Party. None of the
Transferred Contracts obligates any Seller Entity to provide any Person with
contractual terms as favorable as more favorable terms offered to any other
Person.
(ii) Except as set forth in Section 2.2(j)(ii) of the Seller
Disclosure Schedule, no Seller Party is subject to or bound by any
charter, by-law, Encumbrance, Permit, Contract, Order, or any other
restriction of any kind or nature which contains a covenant not to compete
binding on any Seller Party with respect to the Business or would
otherwise restrict or limit (including as to manner or place) the ability
of any Seller Party to conduct the Business, the ability of Buyer to
conduct the Business after the Closing or the ability of any Principal to
conduct or participate in the Business or Buyer's business after the
Closing.
(k) Principal Customers and Suppliers. Section 2.2(k) of the Seller
Disclosure Schedule lists the one hundred (100) largest customers and one
hundred (100) largest suppliers of the Business (based upon dollar volume of
business with Seller Entities during the twelve-month period ended December 31,
2003 (and, if different, the six-month period ended June 30, 2004) and the
volume of business with each such customer or supplier. Since June 30, 2004, no
customer or supplier has suspended, terminated or materially reduced its
business with any Seller Party, or, to the Knowledge of any Seller Party,
indicated its intent to suspend, terminate or materially reduce its business
with any Seller Party other than normal fluctuations in the ordinary course of
business.
(l) Litigation. Except as set forth in Section 2.2(l) of the Seller
Disclosure Schedule, there is no Order or Action pending or, to the best
knowledge of the Seller Parties, threatened (A) against any Seller Party or any
of their properties or assets (real, personal or mixed, tangible or intangible),
(B) against any Principal with respect to his or her capacity as shareholder of
any Seller Party or (C) which seeks to prohibit, restrict or delay consummation
of the transactions contemplated by this Agreement or any of the conditions to
consummation of such transactions.
(m) Employee Benefits.
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(i) Section 2.2(m)(i) of the Seller Disclosure Schedule lists
(and identifies the sponsor of) each material "Employee Pension Benefit
Plan," as that term is defined in Section 3(2) of ERISA, each material
"Employee Welfare Benefit Plan," as that term is defined in Section 3(1)
of ERISA (such plans being hereinafter referred to collectively as the
"ERISA Plans"), and each other material retirement, pension,
profit-sharing, money purchase, deferred compensation, incentive
compensation, bonus, stock option, stock purchase, severance pay,
unemployment benefit, vacation pay, savings, medical, dental,
post-retirement medical, accident, disability, weekly income, salary
continuation, health, life or other insurance, fringe benefit, or other
employee benefit plan, program, agreement, or arrangement maintained or
contributed to by Seller Entities or their Affiliates in respect of or for
the benefit of any Rehired Employees, as of the date hereof (collectively,
together with the ERISA Plans, referred to hereinafter as the "Plans").
Except as disclosed in said Section 2.2(m)(i) of the Seller Disclosure
Schedule, there are no employment, severance, termination or similar-type
agreements between any Seller Party and its Affiliates and any Rehired
Employee. Except as otherwise disclosed on Section 2.2(m)(i) of the Seller
Disclosure Schedule, the execution and delivery of this Agreement by each
Seller Party and the performance of this Agreement by each Seller Party
will not directly result now or at any time in the future in the payment
to any employee of any Seller Entity of any severance, termination, or
similar-type payments or benefits being paid to any such Employee.
(ii) Each Seller Party has delivered to Buyer true and
complete copies of all documents and summary plan descriptions with
respect to the Plans or summary plan descriptions of any Plans not in
writing.
(iii) Neither Buyer nor any of its Affiliates shall have any
liability arising from or related to the Plans or any other employee
benefit plans maintained or contributed to by any Seller Party or any
entity that would be treated as a single employer with a Seller Party
under Sections 414(b), (c) or (m) of the Code.
(iv) Except as set forth on Section 2.2(m)(iv) of the Seller
Disclosure Schedule, none of the ERISA Plans is a "multiemployer Plan," as
that term is defined in Section 3(37) of ERISA, and with respect to any
such multiemployer plans (as so defined) listed in Section 2.2(m)(iv) of
the Seller Disclosure Schedule, no Seller Party has made or incurred a
"complete withdrawal" or a "partial withdrawal," as such terms are
respectively defined in Sections 4203 and 4205 of ERISA that would result
in the incurrence of a material liability by a Seller Party.
(v) None of the Rehired Employees are represented by a labor
union or labor organization, and (ii) no Seller Party is subject to any
collective bargaining agreement covering any Rehired Employee. There are
currently no strikes, slowdowns, work stoppages or lockouts by or with
respect to any Rehired Employee. To the best knowledge of Seller Parties,
during the twelve (12) months preceding the date of this Agreement, there
have not been any union organizational campaigns by or directed at Rehired
Employees.
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21
(n) Insurance. Seller Entities have, and at all times during the
past five (5) years, have had, insurance policies in full force and effect with
reputable insurers, providing for coverage which is reasonable for the Business
as to both amount and scope. Seller Entities' current insurance coverage is as
described in Section 2.2(n)(i) of the Seller Disclosure Schedule. No such
policies are subject to retroactive premium adjustments except as expressly
noted in Section 2.2(n) of the Seller Disclosure Schedule. No Seller Entity is
in default under any such policy or bond. Each Seller Entity has timely filed
claims with its insurers with respect to all material matters and occurrences
for which it believes it has coverage. No Seller Entity has received any notice
or other indication from any insurer or agent of any intent to cancel or not so
renew any insurance policy maintained by any Seller Entity. Section 2.2(n)(ii)
of Seller Disclosure Schedule describes Seller Entities' self-funded insurance
programs and excess claims insurance policies related to such programs. Except
as set forth on Section 2.2(n) of the Seller Disclosure Schedule, each Seller
Entity with a self-funded insurance program has, and at all times during the
past two (2) years has had, amounts of capital reserves for its self-funded
insurance programs that are adequate and satisfy all requirements set forth by
Law and appropriate excess insurance policies related to such self-funded
insurance programs.
(o) Intellectual Property.
(i) Section 2.2 (o)(i) of the Seller Disclosure Schedule sets
forth a complete and accurate list and description of (A) all items of
Intellectual Property owned by or developed by, for the benefit of or on
behalf of each Seller Party ("Intellectual Property Rights") and (B) all
Intellectual Property licensed to each Seller Party (the "Licensed
Rights"), including any such Licensed Rights that are licensed by any
Seller Party or Parties to any other Seller Party or Parties, other than
click-wrap, shrink-wrap and commercial off-the-shelf software purchased by
or licensed to a Seller Party. Except for the copy of the source code for
computer software comprising the Seller Parties' LeaseLink lease
comparison tool (the "Pledged Source Code") deposited in a lockbox at US
Bancorp under an agreement dated June 1, 2004 with US Bancorp Business
Equipment Finance Group (the "US Bancorp Factoring Agreement"), and except
as specifically set forth in Section 2.2(o)(i) of the Seller Disclosure
Schedule, (1) Each Seller Party owns and has the full and exclusive right
to use its Intellectual Property Rights and the Intellectual Property
Rights are free of any Encumbrances, are not subject to any license
(royalty-bearing or royalty-free) or any other arrangement requiring any
payment to any Person or the obligation to grant rights to any Person
(except for software licenses granted to customers of Seller Entities in
the ordinary course of operation of the Business), (2) the Licensed Rights
are free and clear of any Encumbrances, royalties or other obligations,
(3) to the extent indicated in Section 2.2(o)(i) of the Seller Disclosure
Schedule, the Intellectual Property Rights have been registered in, filed
in or issued by the United States Patent and Trademark Office, the United
States Copyright Office, a duly accredited domain name registrar, the
appropriate offices in the various states of the United States or the
appropriate office of other foreign jurisdictions, each such registration,
filing and issuance remains in full force and effect and is not subject to
any maintenance fees or Taxes or actions falling due within 90 days of the
date of the execution and delivery of this Agreement (other than any such
fees, Taxes or actions included in the Seller Entities' accounts payable
as shown on the Preliminary Balance Sheet), and (4) the Intellectual
Property Rights and the Licensed Rights included in the
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22
Assets are all such rights necessary to conduct the Business as currently
being conducted or currently proposed to be conducted. The validity of the
Intellectual Property Rights and title thereto, and the validity of the
Licensed Rights, (x) have not been questioned in any prior Action, (y) are
not being questioned in any pending Action, and (z) to the best knowledge
of each Seller Party, are not the subject of any threatened or proposed
Action. No Seller Party has received any written notice from any third
party challenging the rights of a Seller Party to use any of the
Intellectual Property Rights.
(ii) Except as specifically set forth in Section 2.2(o)(ii) of
the Seller Disclosure Schedule, the Intellectual Property Rights, the
Licensed Rights and the Business, as now conducted, do not violate,
conflict with, infringe upon, misuse or misappropriate and, to the best
knowledge of each Seller Party, have not been alleged to conflict with,
infringe upon, misuse or misappropriate any Intellectual Property of any
third party. No Seller Party knows of any valid basis for any such
allegations. The Intellectual Property Rights and Licensed Rights are
fully assignable and the consummation of the transactions contemplated
hereby will not result in the loss or impairment of any of the
Intellectual Property Rights or any of the Licensed Rights. No Seller
Party knows of any use by any third party of the Intellectual Property
Rights or the Licensed Rights, except for software licenses granted to
customers of Seller Entities in the ordinary course of operation of the
Business.
(iii) Except as set forth in Section 2.2(o)(iii) of the Seller
Disclosure Schedule, no Intellectual Property Rights have been cancelled,
abandoned or otherwise terminated and all required renewal and maintenance
fees in respect thereof have been paid. Except as set forth in Section
2.2(o)(iii) of the Seller Disclosure Schedule, each Seller Party has the
exclusive right to file, prosecute and maintain all applications and
registrations listed (or required to be listed) for such Seller Party in
Section 2.2(o)(i) of the Seller Disclosure Schedule.
(iv) Except as set forth in Section 2.2(o)(iv) of the Seller
Disclosure Schedule, each Seller Party has obtained from all employees and
consultants of such Seller Party who have contributed to the creation or
development of Intellectual Property Rights developed by or on behalf of
such Seller Party all written assignments required to be obtained to vest
in the Seller Parties such Intellectual Property Rights to such employee
and consultant contributions that such Seller Party does not already own
by operation of Law. No employee or consultant to any Seller Party is a
party to any Contract that restricts or limits in any way the scope or
type of work in which such employee may be engaged or which such
consultant may perform for the Company or requires such employee or
consultant to transfer, assign or disclose any Intellectual Property Right
he or she may develop or invent or disclose information concerning his or
her work to any Person other than such Seller Party.
(v) Section 2.2(o)(v) of the Seller Disclosure Schedule sets
forth all computer software programs, other than generally available
off-the-shelf commercial software, that are material to the conduct of the
Business. Except as set forth in Section
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23
2.2(o)(v) of the Seller Disclosure Schedule, each Seller Party owns or
possesses valid license rights to all of such programs. Except as listed
in Section 2.2(o)(v) of the Seller Disclosure Schedule, there are no
infringement Actions pending or, to the best knowledge of each Seller
Party, threatened against any Seller Party with respect to any software
owned or licensed by such Seller Party, and the transactions contemplated
hereby will not result in the loss or impairment of any such ownership or
license rights.
(vi) All products of the Business made, used or sold under
patents and patent applications included in Seller Parties' Intellectual
Property Rights, all products and materials of the Business containing a
trademark, service xxxx, trade name or brand name included in Seller
Parties' Intellectual Property Rights and all published or unpublished
works encompassed by copyrights included in Seller Parties' Intellectual
Property Rights have been marked with the proper patent notice, bear the
proper federal trademark registration notice where permitted by law or a
common-law trademark notice, or have been marked with a proper copyright
notice, as the case may be.
(vii) The documentation relating to each Seller Party's trade
secrets (including technical data, customer lists, designs, processes,
procedure, technology, databases, data collectors, know how, source codes,
schematics, algorithms and other proprietary information or confidential
information or proprietary or confidential material of any type) is
current, accurate, and sufficiently complete and detailed to identify and
explain such trade secrets and allow their use in the Business. No Seller
Parties have nor, to the knowledge of the Seller Parties has any other
Person, used, divulged or appropriated such trade secrets either for the
benefit of any Person (other than the Seller Parties) or to the detriment
of a Seller Party, the Business, or the goodwill associated with any of
them. The Seller Parties have taken all reasonable precautions to protect
the secrecy, confidentiality and value of the Seller Parties' trade
secrets including, without limitation, requiring that all of Seller
Parties' employees and consultants with knowledge of or access to such
trade secrets enter into appropriate confidentiality and non-disclosure
agreements with such Seller Party. A copy of each Seller Party's standard
form of confidentiality and non-disclosure agreement is included as
Section 2.2(o)(vii) of the Seller Disclosure Schedule.
(p) Minute Books. The minute books of the Seller Entities accurately
reflect all material actions and proceedings taken to date by the board of
directors (or the Person or Persons performing similar functions), shareholders,
members and committees of each Seller Entity, as applicable, and such minute
books contain true and complete copies of the charter documents of such Seller
Party and all related amendments. The stock or Equity Security record books of
each Seller Entity reflect accurately all transactions in its capital stock or
other Equity Security of all classes.
(q) Environmental Matters.
(i) Except as set forth in Section 2.2(q) of the Seller
Disclosure Schedule, (A) no Seller Entity has generated, used,
transported, treated, stored, released or disposed of, or has suffered or
permitted any other Person to generate, use, transport, treat, store,
release or dispose of any Hazardous Substance in violation of any Laws;
(B) there has not been any generation, use, transportation, treatment,
storage,
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24
release or disposal of any Hazardous Substance in connection with the
conduct of the Business or the use of any property or facility of any
Seller Entity or, to the best knowledge of Seller Parties, any nearby or
adjacent properties or facilities, which has created or might reasonably
be expected to create any liability under any Laws or which would require
reporting to or notification of any Governmental Entity; (C) no asbestos
or polychlorinated biphenyl or underground storage tank is contained in or
located at any facility of Seller Entities; and (D) any Hazardous
Substance handled or dealt with in any way in connection with the Business
has been and is being handled or dealt with in all respects in compliance
with applicable Laws.
(ii) No Seller Party has (A) received notice that it is a
potentially responsible party for a federal or state environmental cleanup
site or for corrective action under CERCLA or any other applicable Law;
(B) submitted or been required to submit any notice pursuant to Section
103(c) of CERCLA; (C) received any written request for information in
connection with any federal or state environmental cleanup site; or (D)
been required to undertake any prospective or remedial action or clean-up
action of any kind at the request of any Governmental Entity, or at the
request of any other Person relating to any applicable environmental Law.
(iii) The Business has been and is being conducted in material
compliance with all applicable federal, state and local environmental
Laws.
(r) Certain Interests. (i) Except as set forth in Section 2.2(r) of
the Seller Disclosure Schedule, no Affiliate of any Seller Party, no officer or
director of any Seller Party, and no Associate of any thereof, has any material
interest in any of the Assets, the Assumed Liabilities or any property used in
or pertaining to the Business; no such Person is indebted or otherwise obligated
to any Seller Party; no Seller Party is indebted or otherwise obligated to any
such Person, except for amounts due under normal arrangements applicable to all
employees generally as to salary or reimbursement of ordinary business expenses
not unusual in amount or significance. The consummation of the transactions
contemplated by this Agreement will not (either alone, or upon the occurrence of
any act or event, or with the lapse of time, or both) result in any benefit or
payment (severance or other) arising or becoming due from any Seller Party or
any of its Affiliates (including Buyer or any of its Affiliates) or the
successor or assign of any thereof to any Person (including any Seller Party,
any Affiliate of any Seller Party or any Associate of any thereof).
(ii) Except as set forth in Section 2.2(r)(ii) of the Seller
Disclosure Schedule, no officer, director, Associate or Affiliate of any
Seller Party either (A) is, (B) directly or indirectly, has a financial
interest in, or (C) is a director, officer or employee of, any Person
which is a client of, supplier to, customer of or competitor or potential
competitor of any Seller Party.
(s) Intercompany Transactions. Except as set forth in Section 2.2(s)
of the Seller Disclosure Schedule, Seller Parties have not engaged in any
transaction with any other Seller Party, any Affiliate of any Seller Party or
any Associate of any thereof. No Seller Party has any liabilities or obligations
to any other Seller Party, any other Affiliate of any Seller Party
Asset Purchase Agreement
25
or any Associate of any thereof and none of the Seller Parties, such Affiliates
or any Associate of any thereof has any obligations to any other Seller Party.
(t) No Brokers or Finders. No investment banker, broker or finder is
entitled to any financial advisory, brokerage or finder's fee or other similar
payment from any Seller Party based on agreements, arrangements or undertakings
made by them or any Seller Party directors, officers or employees in connection
with the transactions contemplated hereby.
(u) Accuracy of Information. None of the information supplied or to
be supplied by or on behalf of any Seller Party (a) to any Person for inclusion
in any document or application filed with any Governmental Entity having
jurisdiction over or in connection with the transactions contemplated by this
Agreement or (b) except for any preliminary customer list delivered prior to the
delivery of the final Seller Disclosure Schedule, to Buyer, its agents or
representatives in connection with the Business, the Assets, the Excluded
Assets, the Assumed Liabilities, the Excluded Liabilities, this Agreement, the
transactions contemplated by this Agreement or the negotiations leading up to
this Agreement (including information supplied in connection with the
negotiation, execution and delivery of the letter of intent dated June 1, 2004),
contains or will contain any untrue statement of a material fact, or omits to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. If any of such information at any time subsequent to
delivery and prior to Closing becomes untrue or misleading in any material
respect, the Seller Parties will promptly notify Buyer in writing of such fact
and the reason for such change. All documents required to be filed by any Seller
Party with any Governmental Entity in connection with this Agreement or the
transactions contemplated by this Agreement will comply in all material respects
with the provisions of applicable Law.
(v) Accounting Internal Controls. Seller Entities have records that
reflect their material transactions since June 30, 1998, and maintain internal
accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorization,(ii) transactions are recorded as necessary in conformity with
GAAP so as to maintain accountability for assets, (iii) access to assets is
permitted only in accordance with Seller Entities' managements' general or
special authorization, and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences. Such records, to the extent they
contain important information that is not easily and readily available
elsewhere, have been duplicated and, to the knowledge of the Seller Parties,
such duplicates are stored pursuant to procedures and techniques utilized by
companies of comparable size in similar lines of business.
(w) Adequate Capital. After giving effect to the transactions
contemplated hereby, including (i) Buyer's assumption of the Assumed
Liabilities, (ii) utilization of the Consideration in accordance with Section
1.6 (including any such utilization which effects a reduction in certain
payments by Buyer as permitted by Section 1.6(d) hereof), each Seller Party has
both the intent and capacity to discharge all of its current and anticipated
obligations.
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26
ARTICLE III
ADDITIONAL COVENANTS AND AGREEMENTS
3.1 Expenses. Each party hereto shall pay all of its own fees, costs
and expenses (including, without limitation, those of advisors, financial
advisors, lawyers or accountants) incurred by it in connection with the
negotiation, preparation, execution, delivery and performance of this Agreement
and the transactions contemplated hereby.
3.2 Negotiations with Others. Seller Parties acknowledge that Buyer
has expended and will continue to expend significant resources and incur
significant expenses in connection with the transactions contemplated by this
Agreement, including, without limitation, fees and expenses of accountants,
attorneys and other professional advisors incurred in conducting or assisting
Buyer's conducting its due diligence examination of the Seller Parties and the
Assets and in preparing this Agreement and the Exhibits hereto, travel expenses
of Buyer's personnel and compensation expense and general and administrative
expense reflecting the participation of Buyer's personnel in such transactions.
In consideration of Buyer's willingness to expend such resources and incur such
expenses, each of the Seller Parties hereby agrees that none of them and none of
the Seller Entities' respective shareholders, affiliates, directors, officers,
employees, advisors, agents or representatives (collectively, the "Seller
Representatives") shall directly or indirectly encourage, solicit, initiate or
participate in discussions or negotiations with, respond favorably to a proposal
by, provide any confidential information to, or reach any agreement (definitive
or otherwise) with, any person (other than Buyer) concerning any (a) merger with
any Seller Entity, (b) sale, transfer or other disposition of the assets to be
acquired, any other assets of any Seller Party or any material part thereof, (c)
sale, transfer or other disposition of any stock or membership interests of any
Seller Entity or (d) any similar transaction involving any Seller Party or the
Assets. Without limiting the foregoing each of the Seller Parties hereby
represent and warrant that there are no pending discussions, negotiations or
other activities described in the immediately preceding sentence on the date
hereof, and that any such discussions, negotiations or other activities that
were pending or occurred on or prior to the date of the Letter of Intent dated
June 1, 2004 were terminated on that date of such Letter of Intent. The Seller
Parties will promptly communicate to Buyer the terms of any proposal or inquiry
it may receive from any person other than Buyer in respect of any such
transaction. In the event of any breach of the terms of this Section 3.2, Buyer
shall be entitled to terminate this Agreement immediately. Seller Parties
further acknowledge that in addition to the expenses to be incurred by Buyer, as
described in this Section 3.2, any violation of this Section 3.2 would result in
Buyer's incurrence of significant lost opportunity costs which are incapable of
precise measurement but which would cause significant and long-term harm and
damage to the Buyer. Accordingly, in the event that any Seller Party breaches
this Section 3.2, the Seller Parties will pay the Buyer the sum of $2,000,000.
The Seller Parties will be jointly and severally responsible for such amount.
Buyer acknowledges that one or more of the Principals has acquired the Equity
Securities of Lease Marketing, Ltd. previously owned by Xxxxx Xxxxxxx and that
such acquisition was not subject to or prohibited by this Section.
3.3 Publicity. No party hereto shall issue any press release or
other public statement, with respect to the existence of this Agreement or the
transactions contemplated hereby, except as may be required by Law, as consented
to by the other parties or, in the case of Buyer, in the ordinary cause of its
business.
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27
3.4 Additional Agreements; Approvals; Consents. Upon the terms and
subject to the conditions set forth in this Agreement, each of the parties
agrees to use commercially reasonable efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, and to assist and cooperate with the
other parties in doing, all things necessary, proper or advisable to confirm and
further the effectiveness of, in the most expeditious manner practicable, the
transfer of the Assets to the Buyer and the other transactions contemplated by
this Agreement. The actions contemplated by this Section 3.4 shall include, but
are not limited to: (i) the procurement of any Approvals from all Governmental
Entities and the making of any necessary registrations and filings (including
filings with Governmental Entities) not procured or made prior to the Closing
and the taking of all reasonable steps as may be necessary to obtain an Approval
from, or to avoid an action or proceeding by, any Governmental Entity, (ii) the
procurement of all necessary Approvals from factors and other third parties, and
(iii) the execution and delivery of any additional instruments (including
additional instruments conveying or assigning the Assets) necessary to
consummate the transactions contemplated by this Agreement. To the extent that
any Approval of a third party with respect to any Contract or Permit required in
connection with the transactions contemplated by this Agreement was not obtained
prior to the Closing, each Seller Party shall cooperate with Buyer to obtain
such Approval or, if such approval cannot be obtained, to use commercially
reasonable efforts to secure for Buyer the benefits of such Contract or Permit.
3.5 Tax Matters; Tax Returns.
(a) From and after the date of the execution and delivery of this
Agreement, to the extent reasonably requested by any party hereto, each party
hereto shall, and shall cause their respective Affiliates to, (i) cooperate
fully in the preparation of any Tax Return, (ii) provide, or cause to be
provided, any records and other information requested by such parties in
connection therewith, as well as access to, and the cooperation of, the auditors
of such party, at the sole cost and expense of the party making such request,
and (iii) cooperate fully in connection with any Tax investigation, audit or
other proceeding. Any information obtained pursuant to this Section 3.5 or
pursuant to any other Section hereof providing for the sharing of information or
the review of any Tax Return or other schedule relating to Taxes shall be
subject to Section 7.3.
(b) Seller Entities shall prepare, or cause to be prepared, all Tax
Returns relating to Taxes imposed with respect to the Business for the taxable
periods, or portions thereof, beginning before and ending before or on the
Effective Date. Seller Entities shall file, or cause to be filed, when due
(subject to permissible extensions) all such Tax Returns which a Seller Party or
any of its Affiliates is required or permitted by law or administrative practice
to file. Buyer shall prepare, or cause to be prepared, and file or cause to be
filed, when due (subject to permissible extensions) all other Tax returns with
respect to the Business due to be filed after the Effective Date.
(c) Buyer shall prepare and provide Seller Parties with a schedule
(the Allocation Schedule"), which allocates the value of the Consideration
delivered to Seller Parties, including Buyer's assumption of the Assumed
Liabilities among the Seller Parties and to the Assets in accordance with the
fair market value of the Assets and the Assumed Liabilities in accordance with
Section 1060 of the Code, not later than 30 days prior to the extended due date
Asset Purchase Agreement
28
of the Tax returns to which IRS Form 8594 must be attached. Seller Parties and
Buyer shall negotiate in good faith to reconcile any disagreements relating to
the Allocation Schedule. If Seller Parties and Buyer cannot agree on a mutually
acceptable determination, allocation or determination and allocation of the
Purchase Price, Buyer and Seller Parties shall each determine, allocate or
determine and allocate, as the case may be, the Purchase Price in the manner it
considers appropriate. Buyer and Seller Parties each agree to prepare and file
an IRS Form 8594 in a timely fashion in accordance with the rules under Section
1060 of the Code. Any determination, allocation or determination and allocation
of the Consideration among the Seller Parties and to the Assets in accordance
with the fair market value of the Assets and the Assumed Liabilities agreed upon
by Buyer and Seller Parties pursuant to the second sentence of this subsection
shall be binding on Buyer and Seller Parties for all Tax reporting purposes.
(d) Other than Taxes the responsibility of which is governed by
clause (f) below, Seller Parties shall be responsible for (and shall indemnify
and hold Buyer harmless against) any and all claims for Taxes due in respect of
the Assets for any taxable period (or portion thereof) ending on or before the
Effective Date and Buyer shall be responsible for (and shall indemnify and hold
the Seller Parties harmless against) any and all claims for Taxes (the basis of
taxation for which is measured as of or day following the Effective Date) due in
respect of the Assets for any taxable period (or portion thereof) beginning
after the Effective Date.
(e) Other than Taxes the responsibility of which is governed by
clause (f) below, for taxable years that begin before, and end after the
Effective Date (all such periods of time being hereinafter called "Proration
Periods"), any real and personal property taxes, ad valorem taxes, and other
similar taxes that are imposed on a periodic basis (as opposed to a net income
basis) (collectively, "Periodic Taxes") with respect to the Assets shall be
apportioned between Seller Parties and Buyer as of the Effective Date, with
Buyer bearing only the expense thereof in the proportion that the number of days
remaining in the applicable Proration Period after the Effective Date bears to
the total number of days covered by such Proration Period.
(f) Seller Parties shall be responsible for and shall pay all
personal property transfer Taxes, if any, and all sales, use and similar Taxes,
if any, imposed on or in connection with the operation prior to the Effective
Date and the purchase, sale or transfer of the Assets to Buyer and the
assumption of the Assumed Liabilities by Buyer pursuant to this Agreement.
3.6 Accounts Receivable. From and after the Effective Date, Seller
Entities shall, and the Principals shall cause the Seller Entities to, promptly
forward to Buyer, in the exact form received, any checks, other payments,
documents or other materials received by such Seller Party but included in the
Assets (including, without limitation, checks and other payments in respect of
accounts receivable included in the Assets). At Buyer's expense, Seller Entities
shall also assist Buyer in the collection of the accounts receivable included in
the Assets by way of consultation reasonably required by Buyer and issuance of
written notice to each of the obligors on such accounts receivable of the
Buyer's purchase of the Assets, accompanied by instructions to such obligors to
deliver payments on such accounts receivable to Buyer or as Buyer may direct.
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3.7 Notification of Certain Matters. Seller Parties shall give
prompt notice to Buyer, and Buyer shall give prompt notice to Seller Parties,
after becoming aware of (i) the occurrence, or failure to occur, of any event
that would be likely to cause any representation or warranty contained in this
Agreement to be untrue or inaccurate in any material respect as of the date of
the execution and delivery of this Agreement and (ii) any failure of Buyer or
any Seller Party, as the case may be, to comply with or satisfy, in any material
respect, any covenant, condition or agreement to be complied with or satisfied
by it under this Agreement. No such notification shall affect the
representations or warranties of the parties or the conditions to their
respective obligations hereunder. The notification obligations of each party set
forth in this Section 3.7 shall expire concurrently with the expiration of such
party's indemnification obligations set forth in Section 6.2 herein. Seller
Parties shall also give prompt notice to Buyer of any of the following of which
they become aware after the Effective Date: (x) any claim made by, or Action
threatened or commenced against a Seller Party, including, without limitation,
by any former customer of any Seller Entity relating to the failure or alleged
failure of such customer to receive service under such customer's lease, or (y)
any notice of non-payment given by a factor.
3.8 Selling Entity and Product Names. Each Seller Entity that uses
"LML," "Lease Marketing," "Wizard," "Lease," "Superior," "Track," "Sales Desk"
(the "Seller Product Names") or any similar words or phrases in its name, shall
deliver at Closing the documents or instruments required to be filed with any
Governmental Entity or other Person to change its current name to a name that
does not contain any of such initials, words or phrases and to file any such
instruments or documents such that the name change shall be effective on the
Effective Date. The Seller Entities shall also take any actions necessary to
effect such name changes in any of their Affiliates or Subsidiaries not party to
this Agreement, as requested by Buyer (including without limitation entities in
which a Principal holds an ownership interest). Such new names shall not be
similar to, conflict with or otherwise interfere with Buyer's ability to use
Seller Entities' current names after the Closing, and shall not be similar to or
likely to be confused with any corporate name or trade name previously used by
any Seller Party or by Buyer or its Affiliates or with the name of any product
or service offered by the Business, Buyer or its Affiliates. Seller Entities
shall also deliver at Closing any necessary documents to transfer or surrender
any assumed name ("d/b/a") registrations of any Seller Party in any state as of
the date hereof to Buyer, as requested by Buyer and shall otherwise cooperate
with Buyer and its Affiliates to allow them to file or register the use of and
use the entity names and assumed names of the Seller Entities. After the
Closing, Seller Parties shall not, and shall cause their Affiliates and
Subsidiaries not to, sell, distribute or deal in any product or service bearing
a name that consists of or includes any Seller Product Name or any similar words
or phrases.
3.9 Maintenance of Corporate Existence. Seller Entities shall
maintain, and the Principals shall cause the Seller Entities to maintain and
keep in full force and effect the corporate or other entity existence, rights,
licenses and franchises of each Seller Entity (other than Permits and Approvals
transferred to Buyer as part of the Assets) and to comply with all applicable
Laws and Orders and their respective organizational documents, in each case
until the expiration or termination of all Contracts that have been factored by
any Seller Entity.
3.10 Covenant Not to Xxx. Each Seller Party, for itself and its
heirs, executors, legal representatives, administrators, successors and assigns,
hereby irrevocably
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30
covenants that such Selling Party will never (a) xxx or bring any Action against
Buyer or any of its Affiliates in their capacities as subcontractors under any
Contract factored by a Seller Party prior to the date of the execution and
delivery of this Agreement, or in any other capacity in which Buyer or any such
Affiliate may from time to time agree or undertake to perform the obligations of
any Seller Party under any such Contract (a "Subcontracted Service Obligation"),
(b) voluntarily commence, voluntarily join in or voluntarily participate as an
adverse party in any Action against Buyer or any of its Affiliates in which any
Person is attempting, directly or indirectly, to assert or make or claim in
respect of, a Subcontracted Service Obligation, or (c) raise any Subcontracted
Service Obligation as a defense or bring a counterclaim or cross-claim against
Buyer or any of its Affiliates asserting, directly or indirectly, any
Subcontracted Service Obligation, in any Action. Each Selling Party, for itself
and its heirs, executors, legal representatives, administrators, successors and
assigns, agrees for such Selling Party that the covenant contained in this
Section 3.10 may be interposed as a complete defense and bar to any Action that
may be brought, instituted or prosecuted by such Selling Party, or its heirs,
executors, legal representatives, administrators, successors and assigns,
against the Buyer or any of its Affiliates, concerning a Subcontracted Service
Obligation. Nothing in this Section 3.10 shall be construed so as to limit the
right of any third party to bring an Action against Buyer.
3.11 Audit Assistance. From and after the date of the execution and
delivery of this Agreement, to the extent reasonably requested by Buyer in
connection with (a) any audit of Buyer's consolidated financial statements (b)
any separate presentation to be prepared by Buyer of the financial statements of
the Business (including, without limitation, any such separate presentation of
the Business as a "significant subsidiary" or a "business acquired" within the
meaning of the accounting rules of the Securities and Exchange Commission), or
(c) any presentation to be prepared by Buyer of the pro forma effects of Buyer's
acquisition of the Business, the Seller Parties shall, and shall cause their
Affiliates and auditors to, (i) cooperate fully in the preparation of any such
financial statements or pro forma presentation, and (ii) provide, or cause to be
provided, any records and other information requested by Buyer in connection
therewith, as well as access to, and the cooperation of, the auditors and audit
work papers relating to the Seller Parties, at the cost and expense of the
Buyer.
3.12 Audited and Restated Financial Statements. Not later than
ninety (90) days following July 31, 2004, the Seller Parties shall deliver to
Buyer audited consolidated financial statements of the Seller Entities for the
years ended December 31, 2003 and 2002 and the period from January 1, 2004 to
July 31, 2004, together with the report of Kolnicki, Xxxxxxxxx and Worth LLP,
independent accountants, in each case including a balance sheet as of each such
date and the related statements of income and retained earnings and cash flows
for the period then ended (the "2002-2004 Financial Statements." The 2002-2004
Financial Statements shall include the assets, liabilities, results of
operations and cash flows, if any, of LML Systems, Inc. as of and for all years
or periods presented, shall be true and correct in all material respects and
shall fairly present the financial condition, results of operations and cash
flows of the Seller Entities as of December 31, 2002 and 2003 and as of July 31,
2004 and for the years or period then ended in accordance with GAAP consistently
applied and (i) in the case of the financial statements as of and for the year
ended December 31, 2002 shall be restated, and (ii) in the case of the financial
statements as of and for the year ended December 31, 2003 and as of and for the
period ended on July 31, 2004, shall be prepared in conformity with, the
following accounting principles:
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31
(a) Contract revenues shall be recognized on a straight line basis
over the life of the relevant Contract;
(b) The cost of equipment leased to customers shall be capitalized
and depreciated over the life of the related Contract;
(c) Costs of purchasing Contracts with competitors shall be
capitalized and amortized over the life of the Contract with a Seller Entity
that replaces the competitor Contract;
(d) expenditures for repurchases of Contracts with a Seller Entity
shall be reported under "Other income (expense)";
(e) Contract set-up costs shall be capitalized and amortized over
the life of the related Contract; and
(f) factoring costs shall be recorded as financing costs under other
income(expense);
provided, however, that such restatement shall not constitute grounds for Buyer
to assert that the Seller Parties' representations and warranties in Section
2.2(f)(i) were inaccurate in any material respect. The costs of preparing and
auditing the 2002-2004 Financial Statement shall be borne 50% by the Seller
Parties and 50% by the Buyer.
ARTICLE IV
CONDITIONS TO THE CLOSING
4.1 Conditions to the Closing Relating to Buyer. Buyer's obligation
to consummate the transactions contemplated hereby is subject to the fulfillment
prior to or at the date of the execution and delivery of this Agreement, of each
of the following conditions:
(a) Regulatory Consents, Authorizations, etc. All consents,
authorizations, Orders and Approvals of, and filings and registrations with any
Governmental Entity or any other Person which are required for or in connection
with the execution and delivery of this Agreement and the consummation by each
party hereto of the transactions contemplated hereby, shall have been obtained
or made, any applicable waiting period under the Xxxx-Xxxxx-Xxxxxx Act shall
have expired or been terminated, and any applicable notice period after delivery
of any notice required by the Federal Worker Adjustment Retraining and
Notification Act and any applicable similar statute of any state shall have been
satisfied.
(b) Representations and Warranties. [Intentionally omitted]
(c) Litigation; Other Events. No Law shall have been enacted,
entered, issued, promulgated or enforced by any Governmental Entity, nor shall
any Action be pending or threatened, which prohibits or restricts or, (if
successful) would prohibit or restrict, the transactions contemplated by this
Agreement or would not permit the Business as presently conducted to continue
unimpaired following the Effective Date.
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32
(d) Certificate. [Intentionally omitted]
(e) Deliveries. The deliveries referred to in Section 1.9(a) shall
have been made.
(f) Legal Opinions. Buyer shall have received legal opinion of
Semanoff, Ormsby, Xxxxxxxxx & Xxxxxxx, LLC, counsel to the Seller Parties in
form and substance substantially as set forth on Exhibit C hereto. In rendering
such opinion, such counsel may rely, as to matters of Illinois Law, on the
opinion of Xxxxxxxx & Xxxxx, LLP.
(g) Consulting Agreements. Xxxxxxx shall have executed and delivered
to Buyer a consulting agreement in substantially the form annexed as Exhibit D-1
hereto and Xxxxxx shall have executed and delivered to Buyer a consulting
agreement in substantially the form annexed as Exhibit D-2 hereto.
(h) Software Closing. The Pledged Source Code (and all media,
manuals and other materials relating thereto) shall have been removed from the
lock box referred to in the U.S. Bancorp Factoring Agreement, Xxxxxxx, Xxxxxxx
Trust and Lease Marketing Ltd. shall have executed and delivered to Buyer the
Software Sale Agreement, and the closing under such agreement shall occur
simultaneously with the Closing hereunder.
(i) Due Diligence. Buyer and its Affiliates shall have completed
their due diligence examination of the Assets, the Business and the Selling
Parties to the satisfaction of Buyer and its Affiliates.
4.2 Conditions to the Closing Related to Seller Parties. The Seller
Parties' obligation to consummate the transactions contemplated hereby is
subject to the fulfillment, prior to or at the date of the execution and
delivery of this Agreement, of each of the following conditions:
(a) Regulatory Consents, Authorizations, etc. All consents,
authorizations, Orders and Approvals of, and filings and registrations with any
Governmental Entity or any other Person which are required for or in connection
with the execution and delivery of this Agreement and the consummation by each
party hereto of the transactions contemplated hereby, shall have been obtained
or made, and any applicable waiting period under the Xxxx-Xxxxx-Xxxxxx Act shall
have expired or been terminated.
(b) Representations and Warranties. [Intentionally omitted]
(c) Litigation; Other Events. No Law shall have been enacted,
entered, issued, promulgated or enforced by any Governmental Entity, nor shall
any Action be pending or threatened at what would otherwise be the date of the
execution and delivery of this Agreement, which prohibits or restricts or would
(if successful) prohibit or restrict the transactions contemplated by this
Agreement.
(d) Certificate. [Intentionally omitted]
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33
(e) Legal Opinions. The Seller Parties shall have received legal
opinion of O'Melveny & Xxxxx LLP, counsel to Buyer in form and substance
substantially as set forth on Exhibit G hereto
(f) Deliveries. The deliveries referred to in Section 1.9(b) shall
have been made.
(g) Consulting Agreement. Buyer shall have executed and delivered to
Xxxxxxx a consulting agreement in substantially the form annexed as Exhibit D
hereto.
(h) Software Closing. Buyer shall have executed and delivered to
Xxxxxxx, Xxxxxxx Trust, Lease Marketing Limited the Software Sale Agreement, and
the closing under such agreement shall occur simultaneously with the Closing
hereunder.
ARTICLE V
[INTENTIONALLY DELETED.]
ARTICLE VI
INDEMNITY
6.1 Survival of Representations and Warranties Indemnity. The
representations and warranties by Seller Parties set forth in Section 2.2 hereof
shall survive until the fourth anniversary of the Effective Date, except that
(a) the representations and warranties contained in Section 2.2(h) shall expire
60 days following the expiration of the relevant statute of limitations, (b) the
representations and warranties contained in Sections 2.2(i), 2.2(t) and 2.2(w)
(such sections, together with Section 2.2(h), the "Excluded Sections") shall
survive indefinitely, and (c) if a claim or notice is given under Section 6.2
with respect to any representation or warranty prior to the applicable
expiration date, such representation or warranty shall continue indefinitely
until such claim is finally resolved. A claim with respect to a breach of a
representation and warranty may be brought only during the survival period for
such representation and warranty. A claim for indemnity for breach of covenant
or any claim under Section 6.2(a)(ii) shall survive indefinitely until such
covenant is fully performed and any Losses sustained, suffered or incurred by
Buyer arising out of or relating to such breach have been fully indemnified.
6.2 Indemnification by Seller Parties.
(a) The Seller Parties, jointly and severally, agree to indemnify
and hold harmless Buyer, its Affiliates and their respective directors,
officers, employees and Affiliates ("Buyer Indemnified Parties") from and
against any and all Losses that may be sustained, suffered or incurred by Buyer,
its Affiliates or any other Buyer Indemnified Party arising out of or relating
to (i) any inaccuracy in or breach of any of the representations and warranties
contained in this Agreement, (ii) any breach or nonperformance of any covenants
or agreements made by Seller Parties in or pursuant to this Agreement, (iii) any
Excluded Liability, or (iv) any claim by any former owner of Equity Securities
of any Seller Entity arising out of or attributable to such person's purchase,
ownership or disposition of such Equity Securities. Subject to clause (b) below,
Buyer Indemnified Parties may bring a claim against any Seller Party for the
full amount of any Losses incurred by any Buyer Indemnified Parties in
connection with any
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34
indemnification claim hereunder and shall not be required to pursue such claim
against all Seller Parties or join all Seller Parties in any proceeding.
(b) Except as provided in Section 6.2(c), the Seller Parties shall
not be liable for any claims under Section 6.2(a) arising out of a breach of
representation or warranty (other than the representations and warranties
contained in any Excluded Section) until the aggregate amount due in respect of
such claims and indemnification claims under the Software Sale Agreement exceeds
$25,000 (the "Threshold"). For avoidance of doubt, (i) Buyer's right to reduce
any payment due to any Seller Party or Parties on any anniversary of the
Effective Date by the Buyer Set-Off Amount for such Anniversary Date or by the
amount of any additional deposits into the Disbursement Account pursuant to
Section 1.6(d) shall be exercisable without regard to whether the indemnifiable
Losses of the Buyer Indemnified Parties hereunder and/or under the Software Sale
Agreement meet or exceed the Threshold, and any such payment and reductions
effected by Buyer shall not be included in indemnifiable Losses in determining
whether the Threshold has been met and (ii) indemnification claims by Buyer
pursuant to the Transition Services Agreement may be made without regard to
whether the amount of such claims equal or exceed the Threshold, and such claims
shall not be included in determining whether the Threshold has been met. If such
aggregate amount exceeds the Threshold, then the Seller Parties shall be liable
for the entire amount of such claims and not merely the amount exceeding the
Threshold. All claims shall be measured net of any insurance recoveries received
by Buyer in respect of such claim. Notwithstanding anything in this Article VI
to the contrary, the Seller Parties' aggregate liability under this Section 6.2
and Section 4.3 of the Software Sale Agreement shall not exceed the
Consideration, except that Xxxxx Xxxxxx'x aggregate liability under this Section
6.2 shall not exceed the Purchase Price.
(c) For purposes of determining Buyer's Losses arising out of or
attributable to the inaccuracy or breach of the Seller Parties representations
and warranties contained herein, Buyer's Losses attributable to each Transferred
Contract (other than Backlog Contracts) listed on Section 1.1(d) of the Seller
Disclosure Schedule as a currently active license or lease that is either (i)
not an executed and installed license or lease for its specified term, or (ii)
the terms of which are not accurately described in such schedule shall be
calculated as follows: (A) For Transferred Contracts that were listed on Section
1.1(d) of the Seller Disclosure Schedule that are no longer in effect and should
not have been so listed, Buyer's Losses shall equal the product of the monthly
payment shown as due under such listed Contract times the number of months shown
as remaining in its term, and (B) for Transferred Contracts listed on Section
1.1(d) of the Seller Disclosure Schedule that are in effect, but for which the
actual terms vary adversely from the terms set forth on Section 1.1(d) of the
Seller Disclosure Schedule, an amount equal to the difference between (x) the
total of payments remaining under that lease or license as set forth in Section
1.1(d) of the Seller Disclosure Schedule and (y) the total of the payments
actually remaining under that Transferred Contract (each such amount being a
"Contract Balance"). The aggregate amount of Buyer's Losses determined in
accordance with the preceding sentence shall be reduced by the Contract Balance
due from each customer of the Seller Entities acquired by Buyer that is a party
to an executed and installed lease for its specified term that should have been
listed but was omitted from Schedule 1.1(d) (other than Backlog Contracts) or
for a Transferred Contract listed on Sectoin 1.1(d) of the Seller Disclosure
Schedule the terms of which are more favorable than those set forth on Section
1.1(d) of the Seller Disclosure Schedule. The net amount of Losses described in
this Section 6.2(c) shall be
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35
computed as of (i) the date for the disbursement to the Seller Parties specified
in Section 1.6(c) and (ii) the first through fourth anniversaries of the
Effective Date, and any disbursement to the Seller Parties or deposit or payment
by Buyer due on each such date shall be reduced by the Buyer's net Losses as of
such date, less the aggregate amount previously recovered by Buyer pursuant to
this Section 6.2(c), (but only if such amount is a positive number). The
disbursement or deposit reductions required by this Section 6.2(c) shall be
effected without regard whether the amount of the required reduction exceeds the
Threshold.
6.3 Indemnification by Buyer. The representations and warranties of
Buyer set forth herein shall survive until the second anniversary of the
Effective Date, except that (a) the payment covenants contained in Sections 1.5,
1.6 and 1.7 (the "Buyer Excluded Covenants") shall survive until payment of the
amounts due thereunder (as such amounts may be reduced or set off pursuant to
this Agreement, and (b) if a claim or notice is given under this Section 6.3
with respect to any representation, warranty or Buyer Excluded Covenant prior to
the applicable expiration date, such representation, warranty or covenant shall
continue indefinitely until such claim is finally resolved. Buyer agrees to
indemnify the Seller Parties for any and all Losses sustained, suffered or
incurred by the Seller Parties arising out of or by reason of (i) any breach of
the Buyer's representations and warranties contained herein or the Buyer
Excluded Covenants, (ii) any Assumed Liability or (iii) any Action by a
third-party relating to a Subcontracted Service Obligation arising after the
Effective Date. Buyer shall not be liable for any claims under this Section 6.3
arising out of a breach of representation or warranty until the aggregate amount
due in respect of such claims exceeds the Threshold. If such aggregate amount
exceeds the Threshold, then Buyer shall be liable for the entire amount of such
claims and not merely the amount exceeding the Threshold. Notwithstanding the
foregoing, (x) claims by the Seller Parties that Buyer has failed to make any
payment to or on behalf of the Seller Parties required by the Buyer Excluded
Covenants may be asserted against Buyer without regard to whether the
indemnifiable Losses of the Seller Parties equal or exceed the Threshold and
shall not be included in indemnifiable Losses in determining whether the
Threshold has been met, and (y) indemnification claims by the Seller Parties
pursuant to the Transition Services Agreement may be made without regard to
whether the amount of such claims equal or exceed the threshold, and such claims
shall not be included in determining whether the Threshold has been met. Except
as provided in clause (iii) of this Section 6.3 with respect to third-party
Actions after the Effective Date, nothing in this Section 6.3 shall grant any
right of indemnity to the Seller Parties or impose any obligation on Buyer to
indemnify the Seller Parties for Losses incurred by them in connection with or
arising out of any Subcontracted Service obligation.
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36
6.4 Procedure.
(a) If any party shall seek indemnification with respect to any Loss
or potential Loss arising from a claim asserted by a third party (including a
notice of Tax audit or request to waive or extend a statute of limitations
applicable to any Tax) for which such party seeking indemnification (the
"Indemnified Party") is entitled to indemnification under this Article VI, then
the Indemnified Party shall promptly notify the other party (the "Indemnifying
Party") in writing; provided, however, that no delay on the part of the
Indemnified Party in notifying the Indemnifying Party (except to the extent
notice is not received prior to the expiration of the applicable expiration
provision contained in subsection 6.1 or 6.3, as applicable) shall relieve
Indemnifying Party from any obligation hereunder unless (and then solely to the
extent that) Indemnifying Party is materially prejudiced thereby.
(b) An Indemnifying Party will have the right to defend the
Indemnified Party against the claim with counsel of its choice, reasonably
satisfactory to the Indemnified Party, so long as (i) the Indemnifying Party
notifies the Indemnified Party in writing, within 10 days after the Indemnified
Party has given notice of the claim, that the Indemnifying Party will satisfy
its indemnification obligations to the extent required under this Article VI,
(ii) the Indemnifying Party provides the Indemnified Party with evidence
reasonably acceptable to the Indemnified Party that the Indemnifying Party will
have the financial resources to defend against the claim and to fulfill its
indemnification obligations hereunder, (iii) the claim involves only money
damages and does not seek injunctive or other equitable relief; (iv) settlement
of, or an adverse judgment with respect to, the claim is not, in the reasonable
and good faith judgment of the Indemnified Party likely to establish a
precedential custom or practice or result in an outcome that is materially
adverse to the continuing business interests of the Indemnified Party; and (v)
the Indemnifying Party conducts the defense of the claim actively, diligently
and completely. So long as the Indemnifying Party is conducting the defense of
the claim in accordance with this Section 6.4(b), (x) the Indemnified Party may
participate in the defense of the claim through separate co-counsel, but the
retention of any such separate counsel shall be at the sole cost and expense of
the Indemnified Party, (y) the Indemnified Party will not consent to the entry
of any judgment or enter into any settlement with respect to the claim without
the prior written consent of the Indemnifying Party, which consent shall not be
unreasonably withheld, and (z) the Indemnifying Party will not consent to the
entry of any judgment or enter into any settlement with respect to the claim
without the prior written consent of the Indemnified Party which consent shall
not be unreasonably withheld.
(c) In the event any of the conditions of subsections (i) or (v) of
Section 6.4(b) above is or becomes unsatisfied, however, (i) the Indemnified
Party may defend against, and consent to the entry of any judgment or enter into
any settlement with respect to, the claim in any manner it may deem appropriate
(and the Indemnified Party need not consult with, or obtain any consent from,
any Indemnifying Party in connection therewith), (ii) subject to Section 6.2(b),
the Indemnifying Party will reimburse the Indemnified Party promptly and
periodically for the costs of defending against the claim (including attorneys'
fees and expenses reasonably incurred), and (iii) the Indemnifying Party will
remain responsible to indemnify the Indemnified Party to the extent required
under this Article VI. Without limiting the generality of the foregoing, in the
cases of Losses incurred by Buyer with respect to which (i) Buyer is entitled
indemnification hereunder and (ii) Seller Parties fail to satisfy their
obligations as Indemnified
Asset Purchase Agreement
37
Parties, Buyer may offset such Losses in accordance with Section 6.5 below
against any payment or payments due to a Seller Party under Section 1.5(b),
Section 1.6 or Section 1.7 hereof.
(d) The parties to this Agreement shall execute such powers of
attorney as may be necessary or appropriate to permit participation of counsel
selected by any party hereto and, as may be reasonably related to any such
claim, shall provide access to the counsel, accountants, and other
representatives of each party during normal business hours to all properties,
personal, books, tax records contracts, commitments and all other business
records of such other party and will furnish to such other party copies of all
documents as may reasonably be requested (certified if requested).
6.5 Set-off. In addition to any rights and remedies that Buyer may
have under this Agreement or under applicable Law, Buyer and to the fullest
extent permitted by Law, its Affiliates, are authorized at any time after the
indemnifiable Losses of the Buyer Indemnified Parties exceed the Threshold (as
determined in accordance with and subject to the exclusions set forth in Section
6.2(b)) and from time to time thereafter, to set off and apply any and all
amounts due or which may become due hereunder or under any agreement entered
into in connection with this Agreement, the Software Sale Agreement or the
transactions contemplated hereby and thereby, against any and all obligations
which may become due under this Article VI from any Seller Party to any Buyer
Indemnified Party, irrespective of whether any demand has been made for payment
of such obligation, and notwithstanding that such obligation may be contingent
or not reduced to judgment. Prior to exercising the right of set-off granted by
this Section 6.5, Buyer shall consult with Xxxxxxx, as representative of the
Seller Parties, with a view to reaching agreement with respect to the amount of
the Buyer Indemnified Parties' indemnifiable Losses to be set-off, but, upon
failing to reach such agreement after good-faith consultations, Buyer may
exercise its rights of set-off hereunder.
ARTICLE VII
NON-COMPETE & NONDISCLOSURE
7.1 Non-compete. (i) As a material inducement to Buyer's willingness
to enter into and perform this Agreement and to purchase the Assets and for the
consideration to be paid or provided to the Seller Parties in connection with
such purchase, each Seller Party agrees that it and its controlled Affiliates
will not Compete (as defined below), at any time for ten (10) years after the
Effective Date anywhere in the United States (such period, the "Non-Competition
Period"). For purposes hereof "Compete" means directly or indirectly, for its or
own benefit or as agent for another, carry on activities or participate in the
ownership of (except as the passive holder of less than five percent (5%) of the
outstanding shares of any class of a corporation whose stock is listed on any
national or regional securities exchange or quoted in the Nasdaq Stock Market or
any successor thereto), or management or control of, or the financing of, or be
employed by, or consult for or otherwise render services to, or allow its name
or reputation to be used in or by, any present or future business enterprise
that competes with the Business or the Buyer Business as the same may be
conducted by Buyer and its Affiliates as of the Effective Date, and shall
include but not be limited to, directly or indirectly, diverting to or
soliciting or accepting for any such business enterprise the business of any
Person who, on the date of the execution and delivery of this Agreement, was a
customer of or, based on written records of
Asset Purchase Agreement
38
Buyer existing as of the date of the execution and delivery of this Agreement,
was being pursued as a customer by Buyer, its Affiliates, or any Seller Party.
(ii) The Seller Parties acknowledge and agree that the
provisions of this Section 7.1 have been specifically negotiated and carefully
tailored with a view to preventing the serious and irreparable injury that Buyer
will suffer in the event a Seller Party Competes during the Non-Competition
Period, and is intended to assure that the Buyer receives the full value of the
Assets and the Business, including its goodwill, in consideration of the
Purchase Price, the Consideration and the Additional Consideration paid by Buyer
hereunder and under the Software Sale Agreement. The Seller Parties further
acknowledge that a breach by any Seller Party of this Section 7.1 will cause
irreparable injury and damage to Buyer, the exact amount of which would be
difficult to ascertain, and that the remedies at law for any such breach would
be inadequate. Accordingly, if any Seller Party breaches this Section 7.1, Buyer
shall be entitled to injunctive relief without posting bond or other security
and no Seller Party shall object thereto on the grounds that money damages would
be adequate; provided, however, that Buyer may elect, at its option, to seek
damages instead of injunctive relief by virtue of such breach.
(iii) In the event that, despite the express agreement of
Buyer and the Seller Parties, any provision of this Section 7.1 shall be
determined by any court or other tribunal of competent jurisdiction to be
unenforceable for any reason whatsoever, the parties agree that this Section 7.1
shall be interpreted to extend only over the maximum period of time for which it
may be enforceable, and/or over the maximum geographical areas as to which it
may be enforceable, and/or over the broadest competitive activities as to which
it may be enforceable, and/or to the maximum extent in any and all other
respects as to which it may be enforceable, all as determined by such court or
tribunal.
7.2 Non-Solicitation. The Seller Parties agree, for a period of five
(5) years from the Effective Date, that no Seller Party or any of their
respective controlled Affiliates shall directly or indirectly, solicit, engage
or hire any officer, employee or consultant of Buyer, its Affiliates or any
Seller Party to work in any other business or entity.
7.3 Nondisclosure. At all times from and after the date hereof, each
Seller Party shall keep secret and retain in strictest confidence and shall not,
except with the express prior written consent of Buyer, directly or indirectly
disclose, communicate or divulge to any Person, or use for the benefit of any
Person, any confidential or proprietary information or material relating to
Buyer's or Seller Entities' operations or businesses which it may have learned
as an owner, shareholder, employee, officer or director of a Seller Party or in
connection with the negotiation of this Agreement. Confidential or proprietary
information or material includes, without limitation, the following types of
information or material regarding Buyer, its direct or indirect parents,
Affiliates or related companies: proprietary data processing systems and
software; corporate information, including contractual arrangements, plans,
strategies, tactics, policies, resolutions, patent, copyright, trademark, and
trade name applications, designs, technologies, inventions, know-how, and any
litigation or negotiations; marketing information and methods, including sales
or product plans, products, product lines, proposed products, pricing policies,
fees, strategies, methods, vendors, customers, customer lists, prospects, or
market research data; financial information, including cost and performance
data, debt arrangements, equity structures, investors and holdings; operational
and scientific information,
Asset Purchase Agreement
39
including trade secrets, technical information, and personnel information,
including personnel lists, resumes, personnel data, terms of employment
agreements, organizational structure, and performance evaluations (collectively,
"Proprietary Information"). The restriction contained in the preceding sentence
shall not apply to any Proprietary Information to the extent that (i) such
information is or hereafter becomes generally available to the public without a
breach of this Agreement, (ii) disclosure is made to a Governmental Entity where
it is necessary or appropriate to disclose such information to such Governmental
Entity having jurisdiction over the parties, (iii) disclosure is made to a
party's advisors or counsel bound by either a written agreement or professional
obligations of confidentiality or (iv) disclosure is otherwise required by Law.
To avoid confusion, the restrictions set forth in this Section 7.3 apply to any
disclosure by the Seller Parties of any information related to the terms of or
existence of, or matters discussed in the course of negotiating, this Agreement.
ARTICLE VIII
EMPLOYEE MATTERS
8.1 Employees. As of the Effective Date, Buyer will offer employment
to certain employees of the Business who are listed in Section 8.1 of the Seller
Disclosure Schedule (all such employees, the "Rehired Employees"). The Seller
Parties shall use commercially reasonable efforts to assist Buyer in hiring the
Rehired Employees. Prior to the Closing the Seller Parties shall not take any
action, directly or indirectly, to prevent or discourage any employee of the
Business from being employed by Buyer as of the Effective Date and shall not
solicit, invite, induce or entice any such employee to remain in the employ of
the any Seller Party or otherwise attempt to retain the services of any Rehired
Employee, except with the prior written consent of Buyer. Prior to the Closing,
the parties agree to cooperate with each other with respect to all material oral
or written communications or meetings with the Rehired Employees primarily
regarding future employment.
8.2 Employee Obligations. Except as set forth in the Transition
Services Agreement, each Seller Party will satisfy all obligations for
compensation, wages, bonuses, vacation time and vacation pay, pay in lieu of
vacation and employee benefits for the Rehired Employees attributable to periods
on or before Effective Date. Buyer will assume all obligations for compensation,
wages, bonuses, vacation time and vacation pay and employee benefits, including
employee benefit Plans, for the Rehired Employees who accept employment with
Buyer attributable to periods after the Effective Date, provided that no Rehired
Employee will receive duplicate benefits from both Seller Entities and Buyer.
Seller Entities shall also retain all liabilities to their employees under all
employee benefit Plans sponsored or maintained by Seller Entities. From and
after the Effective Date, all obligations of the Seller Parties to their
respective employees in respect of claims under the Seller Parties' self-funded
short-term disability insurance program shall be processed and disposed of on a
claims made basis.
8.3 COBRA. Subject to the provisions of the Transition Services
Agreement, Seller will be responsible for providing continuation coverage and
all related notices to the extent required by law to any employee of the Seller
Entities or qualified beneficiary who incurs or incurred a qualifying event
under COBRA on or before the Effective Date.
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40
8.4 Vesting. Unless doing so would have material adverse
consequences to the Seller Entities under any Tax law or ERISA, the Seller
Entities shall cause those Rehired Employees who accept employment with Buyer to
become fully vested in their account balances in any defined contribution
pension or profit sharing plan sponsored or maintained by Seller or its
Affiliates, effective as of the Effective Date.
8.5 No Third Party Beneficiaries. Notwithstanding any possible
inferences to the contrary, none of the Seller Parties nor Buyer intends for
this Article VIII to create any rights or obligations except as between the
Seller Parties and Buyer, and no past, present or future employees of a Seller
Party or any dependents or beneficiaries of such employees, shall be treated as
third-party beneficiaries of this Article VIII.
ARTICLE IX
MISCELLANEOUS
9.1 Notices. All notices and other communications provided for
herein shall be in writing and shall be deemed to have been duly given when
delivered personally or sent by telex or telecopy or three (3) business days
after being mailed by registered or certified mail, return receipt requested,
postage prepaid, to the party to whom it is directed or one (1) business day
after being sent via a nationally recognized courier service for next business
day delivery, to the party to whom it is directed:
If to the Buyer, to:
webalg, Inc.
000 Xxxxxx Xxxx
Xxxxx X000
Xxxxxxxx, XX 00000
Attention: Xxxx Xxxxxx, Esq. and Xxxx X. X'Xxxx
Facsimile: (000) 000-0000
With copies to:
O'Melveny & Xxxxx LLP
Times Square Tower
0 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxxx, Esq.
Facsimile: (000) 000-0000
If to any Seller Party, to such Seller Party at or c/o:
Lease Marketing, Ltd.
0000 Xxxxxxxx Xxxxxxx
Xxxxxxx Xxxxx, XX 00000
Attention: Xxxx Xxxxxxx
Facsimile: (000) 000-0000
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41
With copies to:
Xxxxxxx X. Xxxxxx, Xx., Esq.
Semanoff, Ormsby, Xxxxxxxxx & Xxxxxxx, LLC
Suite 200 - Xxxxxxx Court 000 Xxx Xxxx Xxxx
Xxxxxxxxxx, XX 00000
Facsimile: (000) 000-0000
And
Xxxxxxxx & Xxxxx, LLP
Attn: Xxxxxxx X. Xxxxx, Esq.
000 Xxxx Xxxxxxxxx
Xxxxx 0000
Xxxxxx, Xxxxxxxx 00000
or for any party, at such other address as such party shall have specified in
writing to each of the others in accordance with this Section 9.1.
9.2 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but such counterparts
together shall constitute one and the same instrument.
9.3 Section Headings. The section headings of this Agreement are for
convenience of reference only and shall not be deemed to limit or affect any of
the provisions hereof.
9.4 Amendments; No Waivers.
(a) Any provision of this Agreement may be waived or amended if, and
only if, such amendment or waiver is in writing and signed by all of the
parties.
(b) No failure by any party hereto to insist upon the strict
performance of any covenant, duty, agreement or condition of this Agreement, or
to exercise any right or remedy consequent upon a breach hereof, shall
constitute a waiver of any such breach or any other covenant, duty, agreement or
condition hereof.
9.5 Entire Agreement; No Assignment. This Agreement (including the
Exhibits hereto, the Seller Disclosure Schedule and any amendments hereto) (a)
constitutes the entire Agreement and understandings of the parties hereto and
supersedes all prior agreements and understandings, both written and oral, among
the parties hereto with respect to the subject matter hereof including, without
limitation, the Letter of Intent dated June 1, 2004, (b) is not intended to
confer upon any other Person any rights or remedies hereunder, and (c) shall not
be assigned, by operation of Law or otherwise provided, that Buyer may assign
its rights (but not its obligations) under this Agreement to any of its
Affiliates and to any lender(s) (or any agent on their behalf) providing
financing for the transactions contemplated hereby .
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42
9.6 Governing Law. This Agreement shall be governed by and construed
in accordance with the Laws of the State of New York (without regard to the
choice of law provisions thereof).
9.7 Severability. If it is determined by a court of competent
jurisdiction that any provision of this Agreement is invalid under applicable
law, such provision shall be ineffective only to the extent of such invalidity,
without invalidating the remainder of this Agreement.
9.8 JURISDICTION. EACH PARTY HEREBY IRREVOCABLY SUBMITS TO AND
ACCEPTS FOR ITSELF AND ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE
NON-EXCLUSIVE JURISDICTION OF AND SERVICE OF PROCESS PURSUANT TO THE LAWS OF THE
STATE OF NEW YORK AND THE RULES OF ITS COURTS, WAIVES ANY DEFENSE OF FORUM NON
CONVENIENS AND AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY ARISING UNDER
OR OUT OF IN RESPECT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY RELATED
DOCUMENT OR OBLIGATION. EACH PARTY FURTHER IRREVOCABLY DESIGNATES AND APPOINTS
THE INDIVIDUAL IDENTIFIED IN OR PURSUANT TO SECTION 9.1 HEREOF TO RECEIVE
NOTICES ON ITS BEHALF, AS ITS AGENT TO RECEIVE ON ITS BEHALF SERVICE OF ALL
PROCESS IN ANY SUCH ACTION BEFORE ANY BODY, SUCH SERVICE BEING HEREBY
ACKNOWLEDGED TO BE EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT. A COPY OF ANY
SUCH PROCESS SO SERVED SHALL BE MAILED BY REGISTERED MAIL TO EACH PARTY AT ITS
ADDRESS PROVIDED IN SECTION 9.1. IF ANY AGENT SO APPOINTED REFUSES TO ACCEPT
SERVICE, THE DESIGNATING PARTY HEREBY AGREES THAT SERVICE OF PROCESS SUFFICIENT
FOR PERSONAL JURISDICTION IN ANY ACTION AGAINST IT IN THE APPLICABLE
JURISDICTION MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT
REQUESTED, TO ITS ADDRESS PROVIDED IN SECTION 9.1. EACH PARTY HEREBY
ACKNOWLEDGES THAT SUCH SERVICE SHALL BE EFFECTIVE AND BINDING IN EVERY RESPECT.
NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF ANY PARTY TO BRING ANY ACTION OR
PROCEEDING AGAINST THE OTHER PARTY IN ANY OTHER JURISDICTION.
9.9 Attorneys' Fees. In the event of any proceeding arising out of
or related to this Agreement, the prevailing party shall be entitled to recover
from the losing party all of its costs and expenses incurred in connection with
such proceeding, including court costs and reasonable attorneys' fees, whether
or not such proceeding is prosecuted to judgment.
ARTICLE X
DEFINITIONS
10.1 General.
For all purposes of this Agreement, except as otherwise expressly
provided or unless the context otherwise requires,
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43
(a) the terms defined in this Article X have the meanings
assigned to them in this Article X and include the plural as well as the
singular,
(b) all accounting terms not otherwise defined herein have the
meanings assigned under GAAP,
(c) all references in this Agreement to designated "Articles,"
"Sections" and other subdivisions are to the designated Articles, Sections
and other subdivisions of the body of this Agreement,
(d) pronouns of either gender or neuter shall include, as
appropriate, the other pronoun forms,
(e) the words "herein," "hereof" and "hereunder" and other
words of similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision, and
10.2 Definitions. As used in this Agreement and the Exhibits and
Schedules delivered pursuant to this Agreement, the following definitions shall
apply.
"Action" means any action, complaint, petition, investigation, suit or
other proceeding, whether civil or criminal, in Law or in equity, or before any
arbitrator or Governmental Entity.
"Additional Consideration" shall have the meaning set forth in Section
1.7.
"Affiliate" means a Person that directly, or indirectly through one or
more intermediaries, controls, or is controlled by, or is under common control
with, a specified Person.
"Aggregate Buyout Amount" shall have the meaning set forth in Section
1.6(d).
"Agreement" means this Agreement by and among Buyer and Seller Parties, as
amended or supplemented together with all Exhibits and Schedules attached or
incorporated by reference.
"Allocation Schedule" shall have the meaning set forth in Section 3.5(c).
"Approval" means any approval, authorization, consent, qualification or
registration, or any waiver of any of the foregoing, required to be obtained
from, or any notice, statement or other communication required to be filed with
or delivered to, any Governmental Entity or any other Person.
"Associate" of a Person means (x) a corporation or organization (other
than a Seller Party or a party to this Agreement) of which such Person or any
Associate is an officer, director or partner or is, directly or indirectly, the
beneficial owner of ten percent (10%) or more of any class of equity securities;
(y) any trust or other estate in which such Person or any Associate has a
substantial beneficial interest or as to which such Person serves as trustee or
in a similar capacity; and (z) any relative or spouse of such Person or any
relative of such spouse who has the same home as such Person.
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"Assets" has the meaning set forth in Section 1.1 hereof.
"Assumed Liabilities" has the meaning set forth in Section 1.3 hereof.
"Backlog Contract" means a pending or potential Contract for software
licenses and/or related equipment leases that has been negotiated with, accepted
by or is subject to approval by a customer or potential customer of any Seller
Entity, or which becomes a Contract on or after the Effective Date and, in
either case, is not listed on Section 1.1(d)(i) of the Seller Disclosure
Schedule, together with, in each case, all amounts payable by such customer
under the Backlog Contract.
"Business" means the Seller Entities' business comprising the licensing or
sale of computer systems and/or software, whether via a desktop, server network,
application service provider or any other manner, (i) which enables a Dealer, or
customer of a Dealer, to compare with respect to Vehicles (a) available lease
and/or balloon programs; (b) available retail programs (prime and/or non-prime)
and/or (c) available retail, lease and/or balloon programs, in each case, to
identify the programs for the Dealer or customer, as applicable, based on the
criteria supplied by such party, (ii) through which residual value data, lender
rates, and/or program data is licensed or subscribed to with respect to
Vehicles, and to display and print customized financing forms embodying such
lease and/or balloon programs and/or such retail programs, (iii) which enables a
Dealer to extract Vehicle data from a dealer management system to identify
potential Vehicles for sale or lease by the Dealer, and/or (iv) which enables a
Dealer to manage the status of customer transactions, including but not limited
to business development center or lead management systems and/or software.
"Business Day" means any day on which banks are not required or authorized
by Law to close in the City of New York.
"Buyer" has the meaning set forth in the Preamble.
"Buyer Business" means (1) a Multiple Lender, Internet-based,
business-to-business, e-commerce system, which enables (i) Dealers to do one or
more of the following: (a) directly route/transmit credit application data with
respect to a loan or lease to Multiple Lenders and receive credit decisions with
respect to such credit application data, (b) obtain Contract status, pay-off
quotes, prospecting reports, rates, programs and other information related to
the items set forth in this clause (b) from Multiple Lenders, (c) filter and
route credit applications to Multiple Lenders, and/or (d) obtain other
information on products and services Multiple Lenders offer to Dealers; (ii) the
eContracting Service; (iii) PaymentTrack; (iv) Dealers to directly to receive
and/or generate reports from Multiple Lenders related to any of the foregoing;
(v) Multiple Lenders to pass credit applications with respect to Vehicles
between and/or among themselves; and/or (vi) the aggregation of data derived
from Multiple Lenders and Dealers and the sale and distribution of such data to
third parties; and (2) an Internet-based, business-to-business, e-commerce
system, which enables Multiple Lenders to market and sell leased Vehicles either
(i) pre-lease termination, (ii) post-lease termination or (iii)
post-repossession, in each case, to Dealers. For purposes of this definition:
Asset Purchase Agreement
45
"eContracting Service" means an Internet-based,
business-to-business, e-commerce system, which enables (i) Multiple
Lenders to allow Dealers to access, process, complete and source certain
electronic Vehicle loan and lease Contracts and ancillary documents
related thereto on-line and transmit such Contracts and documents to one
or more Lenders, (ii) Multiple Lenders to receive electronic
"authoritative" copies (as such term is used in Section 9-105 of the New
York Uniform Commercial Code (the "NY UCC") or any successor provision
thereto or any substantially similar provision under applicable Law) of
Vehicle loan and lease Contracts, and/or (iii) a Person or entity which
controls electronic "authoritative copies" (as such term is used in
Section 9-105 of the NY UCC or any successor provision thereto) of Vehicle
loan and lease Contracts for Multiple Lenders to access, view, store, add,
delete, replace, track, pool, control, transfer, convert to a legally
binding paper copy, print and/or restore such electronic "authoritative"
copies of Vehicle loan and lease Contracts in a controlled system which
logs all transactions associated therewith.
"Lender" means a financial institution or other financing source and
"Multiple Lenders" means two (2) or more unaffiliated Lenders.
"Payment Track" means a product or service (i) which enables a Dealer or
consumer to compare with respect to leased Vehicles available lease programs
from Multiple Lenders; and/or (ii) through which Multiple Lenders residual value
data, rates, and/or program data are licensed or subscribed to with respect to
leased Vehicles.
"Buyer Disclosure Schedule" means the Buyer Disclosure Schedule dated the
date hereof and delivered by Buyer to the Seller Parties and annexed hereto.
"Buyer Indemnified Party" has the meaning set forth in Section 6.2.
"Buyer Set-off Amount" has the meaning set forth in Section 1.6(f).
"CERCLA" means the Comprehensive Environmental Response, Compensation and
Liability Act, as amended, 42 U.S.C. Section 9601, et seq., or the regulations
promulgated thereunder.
"Closing" means the consummation of the sale transactions contemplated by
this Agreement.
"Closing Balance Sheet" has the meaning set forth in Section 1.6(a).
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and the applicable regulations thereunder.
"Compete" has the meaning set forth in Section 7.1.
"Consideration" has the meaning set forth in Section 1.5(a).
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"Contract" means any agreement, arrangement, bond, insurance policy,
commitment, franchise, indemnity, indenture, instrument, lease, license,
insurance policy or understanding, whether or not in writing.
"Dealer" means a Vehicle dealer in the United States; provided, however,
that for the purpose of determining a quantity of Dealers or retail outlets,
each single physical location of a Dealer Vehicle retail outlet at a single
street address shall be counted as one Dealer or one retail outlet, regardless
of whether such single-street-address location (a) includes one or more physical
buildings such as (i) separate showrooms for new Vehicle franchises and/or used
cars, (ii) separate facilities for fleet sales and/or leasing, (iii) separate
facilities for leasing, or (iv) separate facilities for parts and services, or
(b) supports the sale and/or lease of Vehicles manufactured by one or more
manufacturers, whether with or without the approval of such manufacturer or
manufacturers.
"Disbursement Account" means the account established by Buyer pursuant to
Section 1.6 of this Agreement
"Disbursing Agent" means the agent designated by the Seller Parties to
disburse the Consideration to creditors of the Seller Entities, which shall be
the Buyer or an Affiliate of Buyer designated by Buyer.
"Effective Date" has the meaning set forth in Section 1.8.
"Encumbrance" means any claim, charge, easement, encumbrance, lease,
covenant, security interest, mortgage, lien, option, pledge, rights of others,
license, restriction (whether on voting, sale, transfer, disposition or
otherwise), adverse claim of title, ownership or right to use or other
encumbrance whatsoever, whether imposed by agreement, understanding, law, equity
or otherwise, except for any restrictions on transfer generally arising under
any applicable federal or state securities law.
"Equity Securities" means any capital stock or other equity interest or
any securities convertible into or exchangeable for capital stock or any other
rights, warrants or options to acquire any of the foregoing securities.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the related regulations and published interpretations.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Excluded Assets" has the meaning set forth in Section 1.2 hereof.
"Excluded Liabilities" has the meaning set forth in Section 1.4.
"Excluded Sections" has the meaning set forth in Section 6.1.
"Financial Statements" shall have the meaning set forth in Section 2.2(f).
"GAAP" means generally accepted accounting principles in the United
States.
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"Governmental Entity" means any government or any agency, bureau, board,
commission, court, department, official, political subdivision, tribunal or
other instrumentality of any government, whether federal, state or local,
domestic or foreign.
"Hazardous Substance" shall mean and include: (i) any "Hazardous
Substance" as defined in CERCLA; and (ii) any substances that are defined or
listed in, or otherwise classified pursuant to, any other applicable Laws as
"hazardous substances," "hazardous materials," "hazardous wastes" or "toxic
substances," or any other formulation intended to define, list or classify
substances by reason of deleterious properties such as ignitibility,
corrosivity, reactivity, radioactivity, carcinogenicity, reproductive toxicity
or "EP toxicity," and petroleum and drilling fluids, produced waters and other
wastes associated with the exploration, development, or production of crude oil,
natural gas or geothermal energy, as such Laws were in effect at the time of the
relevant act or omission.
"Income Tax" or "Income Taxes" means any federal, state, local or foreign
income, franchise or similar Tax and in each instance any interest, penalties or
additions to tax attributable to such Tax.
"Indebtedness" means the outstanding principal balance of, and any accrued
and unpaid interest, fees and other amounts (including any prepayment penalties)
payable by the Seller Entities to any bank or other financial institution or
other unaffiliated lender (including any lessor on a capital lease), any other
outstanding obligations (including bank overdrafts) of a Seller Entity to any
bank or other financial institution or other financing source, or other
unaffiliated lender (including any lessor on a capital lease) as of the date of
the execution and delivery of this Agreement (not including any trade payables),
the outstanding principal balance of, and any accrued and unpaid interest, fees
and other amounts payable on, any Seller Party's notes payable and any other
obligations to any shareholder, former shareholder or any Affiliate or Associate
of a Seller Party as of the date of the execution and delivery of this
Agreement, and any Seller Party's obligations, contingent or otherwise, under
factoring arrangements entered into by any Seller Party.
"Indemnified Party" has the meaning set forth in Section 6.4(a).
"Indemnifying Party" has the meaning set forth in Section 6.4(a).
"Intellectual Property" means all domestic and foreign patents, patent
applications, trademarks, service marks and other indicia of origin (whether
registered or unregistered), trademark and service xxxx registrations and
applications for registrations thereof, copyrights in both published and
unpublished works, copyright registrations and applications for registration
thereof, Internet domain names and universal resource locators ("URLs"),
inventions (whether or not patentable), invention disclosures, discoveries,
moral and economic rights of authors and inventors (however denominated),
marketing materials, corporate and business names, source codes, object codes,
computer software programs, trade names, trade dress, brand names, maskworks,
trade secrets (including technical data, customer lists, know-how, show-how,
maskworks, formulae, methods (whether or not patentable), designs, processes,
procedures, technology, industrial design rights, industrial design
registrations, databases, data collectors and other proprietary information, or
confidential information or proprietary or confidential material
Asset Purchase Agreement
48
of any type), whether written or unwritten (and all goodwill associated with,
and all derivatives, improvements and refinements of, any of the foregoing).
"Intellectual Property Rights" has the meaning set forth in Section
2.2(o)(i)(A).
"IRS" means the Internal Revenue Service or any successor.
"Knowledge" or "to his best knowledge" and like terms shall mean, with
respect to an entity, the knowledge of the key executive officers or partners of
that entity after reasonable inquiry, and with respect to an individual, the
actual knowledge of that individual after reasonable inquiry.
"Law" means any constitutional provision, statute or other law, rule,
regulation, ordinance or interpretation of any Governmental Entity and any
Order.
"Licensed Rights" has the meaning set forth in Section 2.2(o)(i)(B).
"Loss" means any action, cost, damage, disbursement, expense, liability,
loss, deficiency, diminution in value, obligation, penalty or settlement of any
kind or nature, whether foreseeable or unforeseeable, including but not limited
to, interest or other carrying costs, penalties, legal, accounting and other
professional fees and expenses incurred in the investigation, collection,
prosecution and defense of claims and amounts paid in settlement, that may be
imposed on or otherwise incurred or suffered by the specified Person.
"Material Agreement" has the meaning set forth in Section 2.2(j).
"Order" means any decree, injunction, judgment, order, ruling, assessment
or writ of any Governmental Entity.
"Pension Plan" has the meaning set forth in Section 2.2(m)(i)(C).
"Permit" means any license, permit, franchise, certificate of authority,
Approval or any waiver of the foregoing, required to be issued by any
Governmental Entity.
"Person" means an association, a corporation, an individual, a
partnership, a trust or any other entity or organization, including a
Governmental Entity.
"Plan" has the meaning set forth in Section 2.2(m).
"Pledged Source Code" has the meaning set forth in Section 2.2(o)(i).
"Preliminary Balance Sheet" has the meaning set forth in Section 1.1(e).
"Principal" has the meaning set forth in the preamble to this Agreement.
"Principals' Loans" means the outstanding principal on July 31, 2004 of,
accrued interest to July 31, 2004 on, and other amounts due on July 31, 2004 in
respect of, the Seller Entities' Indebtedness to the Principals identified as
"Due to Officer" on the Closing Balance Sheet.
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"Proprietary Information" has the meaning set forth in Section 7.3.
"Purchase Price" has the meaning set forth in Section 1.5.
"Rehired Employees" has the meaning set forth in Section 8.1.
"Return" means any report, return, statement, estimate, extension request,
declaration, notice, form or other information required to be supplied to a
taxing authority in connection with Taxes.
"Seller Entities" and "Seller Parties" have the respective meanings set
forth in the preamble to this Agreement.
"Seller Disclosure Schedule" means the Seller Disclosure Schedule dated
the date hereof and delivered by Seller Parties to Buyer and annexed hereto. The
Sections of the Seller Disclosure Schedule shall be numbered to correspond to
the applicable Section of this Agreement and, together with all matters under
such heading, shall be deemed to qualify only that section.
"Software Sale Agreement" has the meaning set forth in the recitals in
this Agreement.
"Subcontracted Service Obligation" has the meaning set forth in Section
3.10.
"Subsidiary" means, with respect to any Person, any corporation,
partnership, limited liability company or other organization, whether
incorporated or unincorporated, of which such Person or any other subsidiary of
such Person beneficially owns a majority of the voting or equity securities.
"Tax" or "Taxes" means taxes of any kind, levies or other like
assessments, imposts, charges or fees, including, without limitation, Income
Taxes, gross receipts, ad valorem, value added, excise, real or personal
property, asset, sales, use, license, payroll, transaction, capital, net worth
and franchise taxes, escheat liability or other similar property rights asserted
by any Governmental Entity or governmental authority, estimated taxes,
withholding, employment, social security, workers compensation, utility,
severance production, unemployment compensation, occupation, premium, windfall
profits, transfer and gains taxes or other governmental taxes imposed or payable
to the United States, or any state, county, local or foreign government or
subdivision or agency thereof, and in each instance such term shall include any
interest, penalties or additions to tax attributable to any such Tax.
"Threshold" has the meaning set forth in Section 6.2(b).
"Transferred Contracts" has the meaning set forth in Section 1.1(d).
"Transition Services Agreement" means the Transition Services Agreement to
be entered into on the date of the execution and delivery of this Agreement in
substantially the form annexed hereto as Exhibit F.
"U.S. BanCorp Factoring Agreement" has the meaning set forth in Section
2.2(o)(i).
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50
"Vehicle" means an automobile, truck, snowmobile, recreational vehicle,
motorcycle, boat or other watercraft or commercial vehicle.
Asset Purchase Agreement
51
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written:
WEBALG, INC.
By:____________________________________
Name:
Title:
LEASE MARKETING, LTD.
By:____________________________________
Name:
Title:
LML ASSET ACQUISITION, LLC
By:____________________________________
Name:
Title:
LML SYSTEMS, INC.
By:____________________________________
Name:
Title:
WIZARD ASSET ACQUISITION, LLC
By:____________________________________
Name:
Title:
Asset Purchase Agreement
S-1
TRUST CREATED UNDER THE XXXX
XXXXXXX DECLARATION OF TRUST DATED
OCTOBER 22, 2002
By:_________________________________
Xxxx Xxxxxxx, Trustee
____________________________________
Xxxx Xxxxxxx
____________________________________
Xxxxx Xxxxxx
Asset Purchase Agreement
S-2
TABLE OF CONTENTS
Page
ARTICLE I SALE; CLOSING................................................ 1
1.1 Transfer of Assets........................................... 1
1.2 Assets Not Transferred....................................... 3
1.3 Assumption of Certain Liabilities............................ 4
1.4 Non-Assumption of Other Liabilities.......................... 4
1.5 Purchase Price............................................... 5
1.6 Consideration Adjustments, Disbursement Account.............. 6
1.7 Additional Consideration..................................... 10
1.8 The Closing.................................................. 11
1.9 Conveyances and Deliveries at the Closing.................... 11
ARTICLE II REPRESENTATIONS AND WARRANTIES.............................. 13
2.1 Representations and Warranties by Buyer...................... 13
2.2 Representations and Warranties by Seller Parties............. 14
ARTICLE III ADDITIONAL COVENANTS AND AGREEMENTS........................ 27
3.1 Expenses..................................................... 27
3.2 Negotiations with Others..................................... 27
3.3 Publicity.................................................... 27
3.4 Additional Agreements; Approvals; Consents................... 28
3.5 Tax Matters; Tax Returns..................................... 28
3.6 Accounts Receivable.......................................... 29
3.7 Notification of Certain Matters.............................. 30
3.8 Selling Entity and Product Names............................. 30
3.9 Maintenance of Corporate Existence........................... 30
3.10 Covenant Not to Xxx.......................................... 30
3.11 Audit Assistance............................................. 31
3.12 Audited and Restated Financial Statements.................... 31
ARTICLE IV CONDITIONS TO THE CLOSING................................... 32
4.1 Conditions to the Closing Relating to Buyer.................. 32
4.2 Conditions to the Closing Related to Seller Parties.......... 33
ARTICLE V [INTENTIONALLY DELETED.]..................................... 34
Asset Purchase Agreement
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TABLE OF CONTENTS
(continued)
Page
ARTICLE VI INDEMNITY................................................... 34
6.1 Survival of Representations and Warranties Indemnity......... 34
6.2 Indemnification by Seller Parties............................ 34
6.3 Indemnification by Buyer..................................... 36
6.4 Procedure.................................................... 37
6.5 Set-off...................................................... 38
ARTICLE VII NON-COMPETE & NONDISCLOSURE................................ 38
7.1 Non-compete.................................................. 38
7.2 Non-Solicitation............................................. 39
7.3 Nondisclosure................................................ 39
ARTICLE VIII EMPLOYEE MATTERS.......................................... 40
8.1 Employees.................................................... 40
8.2 Employee Obligations......................................... 40
8.3 COBRA........................................................ 40
8.4 Vesting...................................................... 41
8.5 No Third Party Beneficiaries................................. 41
ARTICLE IX MISCELLANEOUS............................................... 41
9.1 Notices...................................................... 41
9.2 Counterparts................................................. 42
9.3 Section Headings............................................. 42
9.4 Amendments; No Waivers....................................... 42
9.5 Entire Agreement; No Assignment.............................. 42
9.6 Governing Law................................................ 43
9.7 Severability................................................. 43
9.8 JURISDICTION................................................. 43
9.9 Attorneys' Fees.............................................. 43
ARTICLE X DEFINITIONS.................................................. 43
10.1 General...................................................... 43
10.2 Definitions.................................................. 44
Asset Purchase Agreement
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