EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
among
iPAYMENT, INC.,
a Delaware corporation,
CPS ACQUISITION, L.L.C.,
a Delaware limited liability company,
CARDPAYMENT SOLUTIONS, INC.,
a California corporation
XXXXXXX X. XXXXX,
and
XXXXXXX X. XXXXX
TABLE OF CONTENTS
ARTICLE I PURCHASE AND SALE OF ASSETS..........................................1
1.01 Purchase and Sale............................................1
1.02 Excluded Assets..............................................3
1.03 Assumption of Liabilities....................................3
1.04 Retained Liabilities.........................................4
1.05 Purchase Price...............................................5
1.06 Prorations...................................................5
1.07 Allocation of Purchase Price.................................5
1.08 Agent........................................................5
1.09 Taxes........................................................5
ARTICLE II CLOSING 5
2.01 Closing......................................................5
2.02 Action of Company at Closing.................................6
2.03 Action of Buyer at Closing...................................7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SELLERS......................8
3.01 Corporate Organization; Etc..................................8
3.02 Company's Corporate Powers; Absence of Conflicts With
Other Agreements, etc........................................9
3.03 Controlling Shareholder's Capacity; Absence of Conflicts
With Other Agreements, etc...................................9
3.04 Title to Assets.............................................10
3.05 Capitalization..............................................10
3.06 Company's Subsidiaries......................................10
3.07 Financial Statements........................................10
3.08 Undisclosed Liabilities.....................................11
3.09 Post-Balance Sheet Results..................................11
3.10 Merchant Accounts...........................................11
3.11 Tax Matters.................................................12
3.12 Contracts...................................................12
3.13 Patents, Trademarks, Etc....................................13
3.14 Employees...................................................14
3.15 Labor Matters...............................................14
3.16 Employee and Labor Matters; Employee Benefit Plans..........14
3.17 Litigation..................................................16
3.18 Compliance..................................................16
3.19 Environmental Matters.......................................16
3.20 Certain Payments............................................16
3.21 No Conflict of Interest.....................................17
3.22 Investment..................................................17
3.23 Disclosure..................................................18
3.24 Xxxxxxxxxxx.xxx, LLC........................................18
3.25 Attrition Rate..............................................18
3.26 Real Property...............................................19
3.27 Chargebacks.................................................19
3.28 Leasing Losses..............................................19
3.29 Franchise Issues............................................19
3.30 Ownership and Portability of Merchant Accounts..............19
3.31 Employees and Independent Contractors.......................19
3.32 Dissenters Rights...........................................20
3.33 Independent Agent Contracts.................................20
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ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER AND HOLDINGS...............20
4.01 Corporate Organization; Etc.................................20
4.02 Buyer's Corporate Powers; Absence of Conflicts With
Other Agreements, etc.......................................20
4.03 Holdings' Corporate Powers; Absence of Conflicts With
Other Agreements, etc.......................................21
4.04 Capitalization..............................................21
4.05 Compliance..................................................22
4.06 Litigation..................................................22
4.07 Disclosure..................................................22
4.08 Disclosure to the SEC.......................................22
ARTICLE V COVENANTS PRIOR TO CLOSING..........................................22
5.01 Commercially Reasonable Efforts.............................22
5.02 Termination or Merger of Employee Benefit Plans.............22
5.03 No Solicitation of Other Offers.............................23
5.04 Confidentiality and Public Announcements....................23
5.05 Tax Disclosure..............................................23
ARTICLE VI CONDITIONS TO CLOSING BY SELLERS...................................23
6.01 Compliance..................................................23
6.02 Action; Proceeding..........................................24
6.03 Delivery of Certain Documents...............................24
6.04 Employment Agreements.......................................24
6.05 Non-Compete Agreements......................................24
ARTICLE VII CONDITIONS TO CLOSING BY BUYER AND HOLDINGS.......................24
7.01 Compliance..................................................24
7.02 Action; Proceeding..........................................24
7.03 Delivery of Certain Documents...............................24
7.04 Pension Plan Liability......................................25
7.05 License.....................................................25
7.06 UCC Lien Search.............................................25
7.07 Intentionally Omitted.......................................25
7.08 Intentionally Omitted.......................................25
7.09 Name Change.................................................25
7.10 No Adverse Change...........................................25
ARTICLE VIII POST CLOSING COVENANTS...........................................25
8.01 Offerees....................................................25
8.02 Further Assurances..........................................26
8.03 Merchant Reserves...........................................26
8.04 Trailing Activities.........................................26
8.05 Name Change.................................................26
8.06 Existence...................................................26
8.07 Xxxxxxxxxxx.xxx, L.L.C......................................26
ARTICLE IX INDEMNIFICATION....................................................27
9.01 Indemnification of Buyer and Holdings.......................27
9.02 Indemnification of the Company and the Shareholders.........27
9.03 Procedure for Indemnification - Non Third Party Claims......28
9.04 Procedure for Indemnification - Third Party Claims..........28
9.05 Survival Claims Period......................................29
9.06 Amount Precedent to Any Indemnification Claim...............29
9.07 Cap on Indemnification Liability............................30
9.08 Payment.....................................................30
ARTICLE X TERMINATION 30
10.01 Termination of Agreement....................................30
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10.02 Effect of Termination.......................................30
ARTICLE XI MISCELLANEOUS PROVISIONS...........................................31
11.01 No Brokerage................................................31
11.02 Expenses....................................................31
11.03 Misdirected Payments, Etc...................................31
11.04 Third Party Beneficiary.....................................31
11.05 Entire Agreement/Amendment..................................31
11.06 Severability................................................31
11.07 Waiver......................................................31
11.08 Enforcement.................................................31
11.09 Construction of Terms.......................................32
11.10 Governing Law...............................................32
11.11 Notices.....................................................32
11.12 Assignment..................................................33
11.13 Counterparts................................................33
11.14 Consented Assignment........................................33
11.15 Survival....................................................33
11.16 Headings....................................................33
ARTICLE XII DEFINITIONS.......................................................34
TABLE OF SCHEDULES 40
TABLE OF EXHIBITS 42
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (this "Agreement"), dated August 5, 2003 is
by and among iPAYMENT, INC., a Delaware corporation ("Holdings"), CPS
ACQUISITION, L.L.C. a Delaware limited liability company and a wholly-owned
subsidiary of Holdings ("Buyer"), CARDPAYMENT SOLUTIONS, INC., a California
corporation (the "Company"), XXXXXXX X. XXXXX, and XXXXXXX X. XXXXX (each a
"Controlling Shareholder," collectively the "Controlling Shareholders" and,
together with the Company, the "Sellers").
WITNESSETH:
WHEREAS, the Company develops, markets, distributes, sells and/or leases
credit card transaction processing equipment, services and systems or provides
electronic payment processing services and systems and related products (the
"Business");
WHEREAS, the Controlling Shareholders are the owners of a majority of the
issued and outstanding shares of capital stock of the Company indicated on
Schedule 3.05 hereto; and
WHEREAS, the Company desires to sell and the Buyer desires to purchase
substantially all of the assets used in connection with the operation of the
Business.
NOW, THEREFORE, in consideration of the mutual premises and covenants set
forth herein and other good and valuable consideration, the receipt and
sufficiency of all of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS
1.01 Purchase and Sale. Subject to the terms and conditions of this
Agreement, on the Closing Date, Buyer shall purchase from the Company and the
Company shall sell, assign and deliver to Buyer, good and marketable title to
all of the assets used in connection with the Business, other than the Excluded
Assets, free and clear of all liens, liabilities and encumbrances except for
Assumed Liabilities, including without limitation the following (collectively,
the "Assets"):
(a) all of the Company's accounts receivable and other rights to
receive payments from any person or entity relating to the operation of the
Business, substantially all of which are described in Schedule 1.01(a) hereto
(collectively, the "Receivables");
(b) all of the Company's inventory, substantially all of which
inventory is described in Schedule 1.01(b) hereto;
(c) all of the Company's right, title and interest in and to the name
"CardPayment Solutions," together with all variations thereof (the "Tradename"),
all patents, trademarks, tradenames, service marks, domain names, trade secrets,
copyrights, computer software, inventions, techniques, schematics, manufacturing
and production processes and techniques, research and development information,
financial data, marketing data and plans, pricing and cost information, supplier
lists and information, domain names and applications and registrations therefor
and other intellectual property rights owned by the Company and used in
connection with the Business, including without limitation the items described
in Schedule 1.01(c) hereto (collectively, the "Owned Intellectual Property"),
and the goodwill associated therewith;
(d) all of the tangible personal property owned by the Company,
including without limitation the equipment, machinery, furniture, fixtures,
leasehold improvements and similar items described in Schedule 1.01(d) hereto;
(e) all of the Company's interest in and to those capitalized leases
of the Company described in Schedule 1.01(e) hereto (the "Capitalized Leases");
(f) all of the Company's interest in and to those operating leases of
the Company described in Schedule 1.01(f) hereto (the "Operating Leases");
(g) all of the Company's interest in and to the Processing Agreement
described in Schedule 1.01(g) hereto (the "Processing Agreement");
(h) all of the Company's interest in and to the Sponsorship Agreement
described in Schedule 1.01(h) hereto (the "Sponsorship Agreement");
(i) all of the Company's interest in and to those certain agreements
with Merchants substantially in the form attached hereto as Exhibit 1.01(i)
(collectively, the "Merchant Agreements");
(j) all of the Company's interest, if any, in and to those certain
license and other agreements to use patents, trademarks, tradenames, service
marks, domain names, trade secrets, copyrights and other intellectually property
that is not Owned Intellectual Property but that is used in connection with the
Business, including but not limited to Schedule 1.01(j) hereto (the "License
Agreements");
(k) all of the Company's ownership interest, if any, in and to those
other agreements described on Schedule 1.01(k) hereto (the "Contracts");
(l) all of the Company's interest in and to each merchant account
reserves, deposits, security interests and any other collateral or security set
forth in or securing the obligations to the Company pursuant to any Assumed
Contract, including without limitation those described in Section 3.10 and on
Schedules 3.10(a), 3.10(b) and 3.10(c) (collectively, the "Deposits");
(m) all of the Company's deposits, escrows, prepaid taxes or other
advance payments relating to any expense of the Business, including without
limitation any rent or other prepayment paid pursuant to any Assumed Contract,
including without limitation those described in Schedule 1.01(m) hereto;
(n) all of the Company's rights pursuant to any warranty or guarantee
made by any manufacturer or supplier of products or services to the Company;
(o) any and all records, documents, lists and copies of correspondence
related to past, current or prospective customers or Merchants of the Company,
including without limitation the list attached hereto as Schedule 1.01(o);
(p) any and all documents, files, records and correspondence relating
to the Business or the Merchants;
(q) all claims, other than those presently pursued by the Company,
arising from or in connection with the Business after the Effective Time,
whether known or unknown, contingent or otherwise;
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(r) all of the cash or immediately available funds received by the
Company and the right to receive cash or immediately available funds from
Processor[s], Sponsor Bank[s] or others arising from or in connection with
transactions by Merchants and/or the Business after the Effective Time that are
not otherwise referenced or contained in any other provision of this Section
1.01; and
(s) all other tangible or intangible property owned by the Company or
used in connection with the Business; and
(t) all of the Company's interest in and to those certain agreements
with its independent sales agents substantially in the form attached hereto as
Exhibit 1.01(t) (collectively, the "Independent Agent Agreements").
1.02 Other Excluded Assets. The following assets are not intended by the
parties to be a part of the purchase and sale hereunder and are excluded from
the Assets (collectively, the "Excluded Assets"):
(a) the Company's articles of incorporation, stock ledger, corporate
record books, minute books;
(b) the Company's financial books and records, including books of
account, bank records and tax records;
(c) the rights of Sellers arising in connection with this Agreement;
and
(d) the obligations payable to the Company by shareholders in the
amount of One Hundred Twenty Nine Thousand Four Hundred Thirty-Six and 60/100
Dollars ($129,436.60) as noted on the Company's balance sheet dated May 31,
2003; and
(e) the assets of the Sellers relating to the Business set forth on
Schedule 1.02(e).
1.03 Assumption of Liabilities. Contemporaneously with the conveyance of
the Assets by the Company to Buyer, the Company shall assign and transfer to
Buyer, and Buyer shall accept, assume and agree to pay and perform the following
liabilities and obligations of the Company (collectively, the "Assumed
Liabilities"):
(a) all obligations and liabilities of the Company to provide services
after the Closing under the Assumed Contracts to the extent that the Company's
rights thereunder are actually (with consent where required) assigned to the
Buyer as set forth in the Assignment and Assumption Agreement, provided,
however, that the Buyer is not assuming any obligations or liabilities arising
prior to the Closing other than the Assumed Chargeback Liabilities, or for any
breach or default, under any Assumed Contracts outstanding at the time of
Closing or resulting from any event occurring before the Closing, which with the
giving of notice or the passage of time or both would result in a breach or
default;
(b) all obligations and liabilities of the Company under or pursuant
to all warranties or guarantees made by any manufacturer or supplier of products
or services to the Company to the extent that the Company's rights thereunder
are actually assigned to Buyer;
(c) the Assumed Chargeback Liabilities; and
(d) the liabilities and obligations of the Company in the amounts set
forth on Schedule 1.03(d) (the "Company Debt") not in excess of $1,412,048.42.
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The Buyer is not assuming, and shall not be deemed to have assumed, any
obligations or liabilities of the Sellers other than the Assumed Liabilities
specifically described above. No assumption by the Buyer of any of the Assumed
Liabilities shall relieve or be deemed to relieve the Company or any Controlling
Shareholder from any obligation or liability under this Agreement with respect
to any representations or warranties made by the Company or any Controlling
Shareholder to the Buyer and Holdings.
1.04 Retained Liabilities. Notwithstanding anything in this Agreement to
the contrary, the Buyer is not assuming and will not perform any liabilities or
obligations not specifically described in Section 1.03, whether fixed or
contingent, known or unknown, disclosed or undisclosed, recorded or unrecorded
and whether relating to the Assets, the Business or any other matter, facts or
circumstances, including without limitation the following:
(a) federal, state or local Tax liabilities or obligations of the
Company and/or any Controlling Shareholder whether or not incurred prior to the
date hereof or resulting from the consummation of the transactions contemplated
herein, and any and all other taxes or amounts due and payable as a result of
the exercise by any of the Company's employees of such employees' right to
vacation, paid time off, sick leave and holiday benefits accrued while in the
employ of the Company;
(b) any obligation or liability for services rendered by the Company;
(c) any liability or obligation of the Company arising as a result of
or out of any claim, any legal or equitable action, proceeding or investigation
pertaining to or relating in any way to the Company initiated at any time,
whether or not described in any schedule hereto, except for the Assumed
Chargeback Liabilities;
(d) any obligation or liability arising out of the intentional
misconduct or negligent acts or omissions of the Company, directors,
shareholders, officers or employees;
(e) any liability or obligation of the Company incurred in connection
with the making or performance of this Agreement;
(f) any liability or obligation of the Company arising out of any
Employee Benefit Plan, COBRA or HIPAA;
(g) any liability or obligation of the Company for making payments of
any kind (including as a result of the sale of the Assets or as a result of the
termination of employment by the Company of employees or other labor claims) to
employees of the Company or in respect of payroll taxes for employees of the
Company;
(h) liabilities or obligations arising out of any breach by the
Company prior to the Closing of any Assumed Contract;
(i) liabilities or obligations of the Company arising from the
transactions contemplated in this Agreement, including without limitation sales
taxes, legal fees and all other consulting fees;
(j) the Retained Chargeback Liabilities; and
(k) any interest, penalties, fines or other liabilities arising from
the present dispute between the Company and the Internal Revenue Service
regarding the Company's payroll taxes for 2002
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have not yet been remitted to the IRS, which shall be paid in part by Seller
with the reimbursement received from Buyer pursuant to Section 11.18 of this
Agreement
1.05 Purchase Price. Subject to the terms and conditions hereof, the
consideration for the purchase and sale of the Assets shall be as follows
(collectively, the "Purchase Price"):
(a) Buyer shall assume the Assumed Liabilities;
(b) Buyer shall tender to the Company in cash or otherwise immediately
available funds (the "Cash") an aggregate amount equal to Twelve Million
and No/100 Dollars ($12,000,000.00);
(c) Holdings shall deliver to the Escrow Agent (as defined in the
Escrow Agreement) attached hereto as Exhibit 2.02(o)), within 10 days of
the Closing Date, a certificate issued in the name of CardPayment
Solutions, Inc. for 118,409 shares of the common stock, $0.01 par value per
share, of Holdings (the "Stock"). The Stock shall be held in escrow, and
will be held, distributed and otherwise handled in accordance with the
terms of the Escrow Agreement.
(d) The Buyer shall deliver to the Company, in cash, the contingent
payments corresponding to the achievement by the Buyer of the goals as
enumerated in Schedule 1.05(d).
1.06 Prorations. After the Closing Date, the Company and Buyer shall
prorate as of the Closing Date any amounts which become due and payable or
collectible after the Closing Date with respect to the Assumed Contracts, ad
valorem taxes on the Assets, real property taxes and assessments and all
utilities servicing any of the Assets, including without limitation water,
sewer, telephone, electricity, gas service, and also including any income and
expense that may be settled after the Closing Date.
1.07 Allocation of Purchase Price. The parties hereto agree that the
allocation of the Purchase Price for tax purposes shall be made by Holdings and
shall be set forth in a statement prepared in accordance with the Code. The
parties shall cooperate in the preparation of such which shall be filed as
required by applicable law.
1.08 Agent. Except as of the Closing Date, the Company hereby appoints
Buyer to act as its agent with respect to any and all merchant account reserves,
deposits, security interests or other collateral securing obligations to the
Company, Processor, Sponsor Bank, or any Credit Card Company pursuant to the
Processing Agreement, Sponsorship Agreement or any Merchant Agreement
(collectively, the "Reserves"). As such agent, Buyer may direct, in its sole
discretion, the use of such Reserves to satisfy any liability or obligation of
the Company or a Merchant to any Credit Card Company.
1.09 Taxes. The Company shall be responsible for paying, and shall promptly
discharge when due, any transfer, documentary, sales, use, stamp, registration
and other such Taxes incurred in connection with the consummation of the
transactions contemplated by this Agreement.
ARTICLE II
CLOSING
2.01 Closing. The consummation of the sale and purchase of the Assets and
the other transactions contemplated hereby (the "Closing") shall take place in
Nashville, Tennessee, at the offices of Xxxxxx Xxxxxxx Xxxxxx & Xxxxx, A
Professional Limited Liability Company, or other agreed upon location, at 10:00
A.M. local time on the later of August 1, 2003 or such later date upon which the
parties
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hereto agree, all of the approvals and consents required pursuant to this
Agreement hereof have been obtained, or at such other time as the parties hereto
may mutually designate in writing (the "Closing Date"). Irrespective of the
actual time of Closing, the closing of the transactions with respect to the
Merchants, Merchant Agreements and the revenues and expenses arising in
connection therewith shall be deemed to have taken place and shall be effective
as of the Effective Time and, with respect to all other matters, shall be
effective as of 12:01 a.m. on the Closing Date. Notwithstanding the foregoing,
all representations, warranties and covenants (to be performed prior to Closing)
of the parties in this Agreement shall be measured and determined as of the
Closing Date.
2.02 Action of Company at Closing. At the Closing, the Company shall
deliver to Buyer the following:
(a) Xxxx of Sale in the form attached hereto as Exhibit 2.02(a)
executed by a duly authorized officer of the Company (the "Xxxx of Sale");
(b) Assignment and Assumption Agreement in the form attached hereto as
Exhibit 2.02(b) executed by a duly authorized officer of the Company (the
"Assignment and Assumption Agreement");
(c) Consent to the assignment of the Processing Agreement in the form
attached hereto as Exhibit 2.02(c) executed by a duly authorized officer of
Processor;
(d) Consent to the assignment of the Sponsorship Agreement in the form
attached hereto as Exhibit 2.02(d) executed by a duly authorized officer of the
Sponsor Bank;
(e) Consents to the assignment of all Assumed Contracts set forth on
Schedule 5.05 hereto executed by the applicable third party;
(f) License substantially in the form attached hereto as Exhibit
2.02(f) executed by all the members of Xxxxxxxxxxx.xxx, L.L.C.;
(g) Non-Compete Agreements substantially in the forms attached hereto
as Exhibit 2.02(g) executed by the Company and Exhibit 2.02(h) executed by each
Controlling Shareholder and the persons set forth in Schedule 3.24;
(h) Employment Agreements substantially in the forms attached hereto
as Exhibits 2.02(h)(i) and 2.02(h)(ii) executed by Xxxxxxx X. Xxxxx and Xxxxxxx
X. Xxxxx (the "Employment Agreements");
(i) An opinion from counsel to Company reasonably acceptable to Buyer;
(j) copies of resolutions duly adopted by the Board of Directors and
shareholders of the Company authorizing and approving the Company's performance
of the transactions contemplated hereby and the execution and delivery of the
documents described herein, certified as true and of full force as of Closing by
appropriate officers of the Company;
(k) a certificate of an officer of the Company, dated as of the
Closing Date, certifying that (A) the representations and warranties of the
Company and each Controlling Shareholder made in this Agreement qualified as to
materiality are true and correct, and those not so qualified are true and
correct in all material respects, as of the date hereof and as of the time of
the Closing as though made as of such time, except to the extent such
representations and warranties expressly relate to an earlier date
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(in which case such representations and warranties qualified as to materiality
are true and correct, and those not so qualified are true and correct in all
material respects, on and as of such earlier date); and (B) the Company and each
Controlling Shareholder has duly performed, complied with and satisfied all
covenants, agreements and conditions required by this Agreement to be performed,
complied with or satisfied by it by the time of the Closing;
(l) a certificate of incumbency, dated as of the Closing Date, for the
officers of the Company making certifications for Closing or executing this
Agreement, the Assignment and Assumption Agreement, Xxxx of Sale, or any other
Company Ancillary Document to be executed and delivered by the Company;
(m) certificate of good standing for Company issued by the State of
California, dated the most recent practical date prior to Closing;
(n) all of the Assumed Contracts and Company books, records and other
data relating to the Assets;
(o) Escrow Agreement in the form attached hereto as Exhibit 2.02(o)
executed by a duly authorized officer of the Company (the "Escrow Agreement");
and
(p) all executed agreements, consents or other documents necessary to
transfer ownership and control of all bank, deposit, escrow, reserve, demand,
investment or other accounts of the Company to the Buyer.
Simultaneously with the delivery of the foregoing items, Sellers will take
all such steps as may reasonably be required to put Buyer in actual possession
and operating control of the Assets.
2.03 Action of Buyer at Closing. At the Closing, Buyer shall deliver to the
Company the following:
(a) the Cash;
(b) a certificate evidencing the Stock;
(c) Intentionally Omitted.
(d) the Assignment and Assumption Agreement executed by a duly
authorized officer of Buyer;
(e) Intentionally Omitted.
(f) Intentionally Omitted.
(g) copies of resolutions duly adopted by the Board of Directors and
sole shareholder of Buyer authorizing and approving Buyer's performance of the
transactions contemplated hereby and the execution and delivery of the documents
described herein, certified as true and of full force as of Closing by
appropriate officers of Buyer;
(h) copies of resolutions duly adopted by the Board of Directors of
Holdings authorizing and approving Holdings' performance of the transactions
contemplated hereby and the
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execution and delivery of the documents described herein, certified as true and
of full force as of Closing by appropriate officers of Holdings;
(i) a certificate of an officer of the Buyer, dated as of the Closing
Date, certifying that (A) the representations and warranties of Buyer made in
this Agreement qualified as to materiality are true and correct, and those not
so qualified are true and correct in all material respects, as of the date
hereof and as of the time of the Closing as though made as of such time, except
to the extent such representations and warranties expressly relate to an earlier
date (in which case such representations and warranties qualified as to
materiality are true and correct, and those not so qualified are true and
correct in all material respects, on and as of such earlier date); and (B) Buyer
has duly performed, complied with and satisfied all covenants, agreements and
conditions required by this Agreement to be performed, complied with or
satisfied by it by the time of the Closing;
(j) a certificate of an officer of Holdings, dated as of the Closing
Date, certifying that a certificate of an officer of Holdings certifying that
(A) the representations and warranties of Holdings made in this Agreement
qualified as to materiality are true and correct, and those not so qualified are
true and correct in all material respects, as of the date hereof and as of the
time of the Closing as though made as of such time, except to the extent such
representations and warranties expressly relate to an earlier date (in which
case such representations and warranties qualified as to materiality are true
and correct, and those not so qualified are true and correct in all material
respects, on and as of such earlier date); and (B) Holdings has duly performed,
complied with and satisfied all covenants, agreements and conditions required by
this Agreement to be performed, complied with or satisfied by it by the time of
the Closing;
(k) a certificate of incumbency, dated as of the Closing Date, for the
officers of Buyer making certifications for Closing or executing this Agreement,
Assignment and Assumption Agreement or any other Buyer Ancillary Document to be
executed and delivered by Buyer;
(l) a certificate of incumbency, dated as of the Closing Date, for the
officers of Holdings making certifications for Closing or executing this
Agreement or any other Holdings Ancillary Document to be executed and delivered
by Holdings;
(m) a certificate of formation of Buyer from the State of Delaware,
dated the most recent practical date prior to Closing; and
(n) a certificate of corporate existence of Holdings from the State of
Delaware, dated the most recent practical date prior to Closing.
ARTICLE III
Representations and Warranties of the Sellers
Each of the Controlling Shareholders and the Company hereby, jointly and
severally, represents and warrants to both Buyer and Holdings as follows as of
the date of this Agreement and as of the Closing Date:
3.01 Corporate Organization; Etc. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California. The Company has full corporate power and authority to carry on the
Business as it is now being conducted and to own the properties and assets it
now owns, including without limitation the Assets. The Company is duly qualified
to do
8
business and is in good standing in the jurisdictions set forth in Schedule
3.01, which includes every jurisdiction in which the failure to be so qualified
or in good standing would have a material adverse effect on the Buyer's conduct
of the Business.
3.02 Company's Corporate Powers; Absence of Conflicts With Other
Agreements, etc.
(a) The execution, delivery and performance by the
Company of this Agreement and the other agreements and transactions contemplated
hereby:
(i) are within the Company's corporate powers, are not in
contravention of the terms of the Company's Articles of Incorporation,
Bylaws, or resolutions of the Board of Directors or shareholders, and
have been duly authorized by the Board of Directors of the Company, as
and to the extent required by the Company's Articles of Incorporation
and applicable law; and
(ii) except as set forth on Schedule 3.02, (A) will not
constitute a violation of any judgment, decree, or order of any court
of competent jurisdiction applicable to the Company or any of the
Assets, (B) will not violate any law, rule or regulation of any
governmental authority applicable to the Company or any of the Assets,
(C) will not require any consent, approval or authorization of, or
declaration, filing or registration with, any governmental or
regulatory authority, (D) will not require notice to any governmental
agency; provided however, to the extent the transaction contemplated
herein requires notice to a governmental agency, such notice will be
timely given by Seller and (E) whether with or without notice, the
lapse of time or both, will not conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or
require any notice under any agreement, contract, lease, license,
instrument, or other arrangement to which the Company is a party or by
which it is bound or create any lien, security interest, charge,
encumbrance or restriction on any of the Assets.
(b) This Agreement has been duly and validly executed and delivered by
the Company and, as of the Closing, each of the Company Ancillary Documents will
have been duly and validly executed and delivered by the Company. This Agreement
constitutes, and upon their execution and delivery, each of the Company
Ancillary Documents will constitute, the valid, legal and binding obligation of
the Company, enforceable against it in accordance with their terms.
3.03 Controlling Shareholder's Capacity; Absence of Conflicts With Other
Agreements, etc.
(a) The execution, delivery and performance by each of the Controlling
Shareholders of this Agreement and the other agreements and transactions
contemplated hereby:
(i) is within the authority and legal capacity of each
Shareholder; and
(ii) except as set forth on Schedule 3.03, (A) will
not constitute a violation of any judgment, decree, or order
of any court of competent jurisdiction applicable to any
Controlling Shareholder, (B) will not violate any law, rule or
regulation of any governmental authority applicable to any
Controlling Shareholder, (C) will not require any consent,
approval or authorization of, or declaration, filing or
registration with, any governmental or regulatory authority,
(D) will not require notice to any governmental agency;
provided however, to the extent the transaction contemplated
herein requires notice to a governmental agency, such notice
will be timely given by the Sellers, and (E)
9
whether with or without notice, the lapse of time or both, will
not conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the
right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument,
or other arrangement to which any Controlling Shareholder is a
party or by which it is bound or create any lien, security
interest, charge, encumbrance or restriction on any of the
Assets.
(b) This Agreement has been duly and validly executed and delivered by
each Controlling Shareholder and, as of the Closing, each of the Shareholder
Ancillary Documents will have been duly and validly executed and delivered by
each Controlling Shareholder. This Agreement constitutes, and upon their
execution and delivery, each of the Shareholder Ancillary Documents will
constitute, the valid, legal and binding obligation of each Controlling
Shareholder, enforceable against it in accordance with their terms.
3.04 Title to Assets. Except for the Intellectual Property and as set forth
on Schedule 3.04, the Company has good, valid and marketable title to all of the
Assets owned by the Company, free and clear of any liens, pledges, claims,
charges, rights of first refusals, security interests, encumbrances or rights of
other parties; and the Company has a good and valid leasehold estate in all of
the Assets leased by it; and the Company has a good and valid license or right
to use all of the Assets otherwise used by the Company in connection with the
Business.
(a) The Assets constitute all of the assets necessary or appropriate for
the continued operation of the Business by the Buyer after Closing in the same
fashion as the Company is currently operating the Business.
3.05 Capitalization. As of the date hereof, the Company's authorized
capital stock consists of 500,000 shares of common stock, and no par value per
share, 123,907 shares of which are issued an outstanding. There are no other
classes of securities of the Company outstanding. Each shareholder and their
respective state of residency is set forth on Schedule 3.05.
3.06 Company's Subsidiaries. Except as set forth on Schedule 3.06, the
Company does not own, directly or indirectly, beneficially or equitably, any
capital stock or other equity, ownership or proprietary interest in any
corporation, partnership, limited liability company, association, trust, joint
venture or other entity.
3.07 Financial Statements. Attached hereto as Schedule 3.07 are the
following financial statements --------------------- ------------- of the
Company (collectively, the "Financial Statements"):
(a) the Company's unaudited balance sheet dated as of December 31,
2002;
(b) the Company's unaudited Statement of Income for the twelve (12)
months ended December 31, 2002;
(c) the Company's unaudited balance sheets dated as of May 31, 2003
and June 30, 2003;
(d) the Company's unaudited Statement of Income for each of the six
(6) months ended June 30, 2003.
The Financial Statements have been prepared from the books and records of the
Company which accurately and fairly reflect in all material respects the
transactions with respect to the Business. As
10
qualified by Seller in Schedule 3.07(e), the Financial Statements fairly present
the financial condition, the results of operations and changes in cash flow of
the Company at the respective dates of and for the periods referred to in the
Financial Statements, all in accordance with GAAP, except for the omission of
disclosures and the statement of cash flows subject in the case of interim
financial statements, to normal year end adjustments, the effect of which will
not, individually or in the aggregate, be material. Except as provided in the
preceding sentence, the Financial Statements reflect the consistent application
of GAAP throughout the periods involved and no financial statements of any other
entity are required by GAAP to be included in the financial statements of the
Company. The Financial Statements accurately reflect or adequately provide for
all claims against, and all debts and liabilities of, the Company, fixed or
contingent, existing at the dates thereof. The Company has adequately funded all
accrued employee benefit costs and such funding is reflected on the Financial
Statements.
3.08 Undisclosed Liabilities. Except as otherwise set forth on Schedule
3.08 or as reflected in the most recent Financial Statements, the Company does
not have any material liabilities or obligations of any nature, whether
absolute, accrued, asserted or unasserted, contingent or otherwise or whether
due or to become due, and neither the Company nor any Controlling Shareholder
knows or has reason to know of any basis for the assertion against the Company
of any such liability or obligation of any nature not described in Schedule 3.08
or in the Financial Statements. The company has paid or satisfied all financial
liabilities and obligations when due in the ordinary course. For the purposes of
materiality in this Section 3.08, materiality shall mean anything totaling
$2,000 individually and $15,000 in the aggregate.
3.09 Post-Balance Sheet Results. Except as set forth on Schedule 3.09,
since December 31, 2002, with respect to the Business, there has not been:
(a) any damage, destruction or loss (whether or not covered by
insurance), the occurrence of which could reasonably be expected to have a
material adverse effect on the Assets or Business;
(b) any sale, lease, transfer or disposition by the Company of the
Assets except sales, leases, transfers or dispositions of non-material portions
of the Assets or use of supplies or inventory with replacements thereof in the
ordinary course of the Company's business; or
(c) any change or the occurrence of any fact or condition which may be
reasonably expected to have a material adverse effect (as defined herein) on the
Company's operations, prospects, Business, or the value of the Assets other than
such changes, facts and conditions, if any, affecting the general economy or the
electronic payment industry generally.
For the purposes of Section 3.09, a material adverse effect shall be any change
or loss involving an amount in excess of $10,000.
3.10 Merchant Accounts Settlement Report. The most recent Settlement
Report issued by the Sponsor Banks is attached hereto as Schedule 3.10(a). Since
the date of the Settlement Report, there has not been any material adverse
change in the value and/or the cash flow of the Merchant accounts taken as a
whole. To the Knowledge of Sellers, no Merchant that had transactions, in the
aggregate, with an annual volume in excess of One Hundred Thousand and No/100
Dollars ($100,000.00) as reflected on the Settlement Report intends to cancel or
terminate its Merchant Account or business with the Company, whether as a result
of the consummation of the transactions contemplated by this Agreement or
otherwise and, to the Knowledge of Sellers, no such Merchant intends to
materially change its transaction volume following Closing or will not continue
such relationship with Buyer after the Closing. The Settlement Report is
representative of a month during which the Business was conducted in the
ordinary course. Schedule 3.10(b) sets forth for each Merchant (i) its name and
address; (ii) its current year-to-date sales;
11
and (iii) the discount rate contracted. Schedule 3.10(c) lists, per merchant as
of June 30, 2003, the merchant reserve accounts maintained by each of the
Merchants pursuant to the applicable Merchant Agreement.
3.11 Tax Matters.
(a) Except as noted in Schedule 3.11(a), the Company has filed all Tax
Returns required by law to be filed by it and has paid all Taxes, assessments
and other governmental charges shown thereon as due and payable, the failure of
which to be filed or paid could adversely affect Buyer or Holdings, result in a
lien on the Assets, or could impose upon Buyer or Holdings any transferees
liability for any Taxes due other than those presently payable without penalty
or interest or those being contested in good faith by appropriate procedures and
not material in amount. All of such Tax Returns have been prepared and filed in
accordance with applicable laws and regulations. Each such Tax Return is true in
all material respects, accurate and complete.
(b) The Company has withheld all required amounts from its employees,
agents and contractors and remitted such amounts to the proper governmental
authorities; paid all employer contributions and premiums; and filed all
federal, state, local and foreign Tax Returns and reports with respect to
employee income Tax withholding, and social security and unemployment Taxes and
premiums, all in compliance with the withholding provisions of the Code and
other applicable laws.
(c) There are no liens for Taxes on any of the Assets, except for any
lien for Taxes not yet due.
(d) Except as disclosed in Schedule 3.11(a), there is no dispute or
claim concerning any Tax liability of the Company either (i) claimed or raised
by any authority in writing or (ii) as to which any of the Controlling
Shareholders or any of the directors and officers of the Company has Knowledge
based upon personal contact with any agent of such authority.
(e) To the Knowledge of Sellers and except as noted in Schedule
3.11(a), the Company has not waived any statute of limitations in respect of
Taxes or agreed to any extension of time with respect to a Tax assessment or
deficiency.
(f) The Company is, and has been at all times during its existence, an
"S" corporation within the meaning of Section 1361(a) of the Code. A valid
election under Section 1362 of the Code (and a comparable election under state
or local law in each jurisdiction where the Company is required to file Tax
Returns that provides for such an election) has been in effect with respect to
the Company at all times during its existence.
(g) The Company is not a party to any joint venture, partnership or
other arrangement that could be treated as a partnership for federal income Tax
purposes.
3.12 Contracts. Except for the Assumed Contracts or as otherwise set forth
on Schedule 3.12(a) hereto, the Company is not a party or subject to any written
or express agreement, contract, or obligation, regardless of materiality, nor
any material oral or implied agreement, contract or obligation (materiality for
purposes of this Section 3.12 is defined as that valued at $30,000 or more),
including without limitation:
(i) any Independent Service Organization agreement or any
Independent Training Organization Agreement;
12
(ii) any agreements with authorization network vendors;
(iii) any agreement with a processing bank or other entity that
processes credit card or other transactions on behalf of or for the benefit
of the Company;
(iv) any agreement that limits the right of the Company to engage
in or to compete with any person in any business;
(v) for the lease of any tangible or intangible property;
(vi) not in the ordinary course of business;
(vii) for the purchase or sale of any equipment, supplies or
services with a value in excess of Ten Thousand and No/100 Dollars
($10,000.00);
(viii) for any power of attorney; and
(ix) otherwise material to the Assets, Business or operation of
the Company.
Except as noted in Schedule 3.12(b), each of the material Assumed Contracts is
in full force and effect; each is a legal, valid and binding contract; there has
been no threatened cancellation thereof and there are no outstanding disputes
thereunder; each is with unrelated third parties and was entered into on an
arms-length basis in the ordinary course of business; all will continue to be
binding in accordance with their terms after consummation of the transactions
contemplated herein including obtaining the consents specified in Article V
hereof; there is no material default (or an event which, with the giving of
notice or lapse of time or both would be a material default) by the Company;
and, to the Knowledge of the Company and the Controlling Shareholders, there is
no pending or threatened, bankruptcy, insolvency or similar proceeding with
respect to any other party to the Assumed Contracts.
3.13 Intellectual Property.
(a) Schedule 1.01(c) sets forth all the patents, trademarks, trade names,
service marks, trade secrets, copyrights, service marks and other proprietary
intellectual property rights and licenses that are owned or used by the Company
or are material to the Business. All Owned Intellectual Property (i) has been
duly maintained (including the proper, sufficient and timely submission of all
necessary filings and fees), (ii) has not lapsed, expired or been abandoned, and
(iii) to the knowledge of Company and except as noted on Schedule 3.04 is not
the subject of any opposition, interference, cancellation or other proceeding
before any governmental registration or other authority in any jurisdiction. To
the Knowledge of Sellers, and except as provided in Schedule 3.04, no
infringement exists by the Company on the intellectual property rights of any
other person or entity that results in any way from the operations of the
Business. To the Knowledge of Sellers, and except as provided in Schedule 3.04,
there is no infringing use of any of the Owned Intellectual Property by any
other person or entity.
(b) Except as set forth in Schedule 3.04 the Company has the right to
assign to the Buyer all of the intellectual property used pursuant to the
License Agreements.
(c) Except as set forth on Schedules 3.04 and 1.01(c), the Buyer will own
or be able to use the Intellectual Property on the identical terms and
conditions as the Company owned or used such items prior to the Closing Date,
including without limitation, the Tradename, all computer software used in the
Business and all derivative works thereof developed by the Company and its
employees.
13
3.14 Employees.
(a) Schedule 3.14(a) contains a list of all of the Company's employees
and independent sales representatives, their current salary or wage rates,
department and a job title or other summary of the responsibilities of such
employees as well as a designation of those employees who are the key employees
of the Company. Since December 31, 2002, except in the ordinary course of
business consistent with past practice, there has not been any increase in the
compensation payable or to become payable by the Company to any of the Company's
officers, employees or agents, or any bonus payment or arrangement made to or
with any such person, except as described in Schedule 3.14(a).
(b) The Company has not incurred any liability, or taken or failed to
take any action which will result in any liability, in respect of any failure to
comply with the Fair Labor Standards Act or any other applicable law relating to
minimum wages or maximum hours for employees, equal opportunity, collective
bargaining or workers' compensation insurance. To the Knowledge of Sellers and
except as set forth on Schedule 3.14(b)(i), the Company has not entered into any
written or verbal agreements with the Company's employees. Schedule 3.14(b)(ii)
includes a list of all employees of the Company (other than "part-time
employees") who have been "terminated" or "laid-off" since December 31, 2002 (as
such quoted terms are defined in the Worker Adjustment and Retraining
Notification Act).
(c) Except as noted in Schedule 3.14(c), to the Knowledge of Sellers,
no independent sales representative of the Company that received in excess of
Five Thousand and No/100 Dollars ($5,000.00) as payment of residuals,
commissions, or any other compensation during the calendar year 2002 intends to
cancel or terminate its relationship with the Company prior to Closing or will
not continue such relationship with Buyer after the Closing, whether as a result
of the consummation of the transactions contemplated by this Agreement or
otherwise.
(d) An accurate and complete Form I-9 for each of the Company's
employees has been completed, reviewed and maintained by the Company on a
current basis. The Company has provided Buyer with a complete copy of each such
Form I-9. All of the Company's employees have the necessary and proper legal
authorization to be employed by the Company.
3.15 Labor Matters. The Company has no collective bargaining agreements
with any labor union and there are no current negotiations with a labor union.
The Company is in compliance in all material respects with all applicable laws
respecting employment and employment practices, terms and conditions of
employment and wages and hours, and is not engaged in any unfair labor practice.
There is no unfair labor practice complaint against the Company pending before
the National Labor Relations Board. There is no labor strike, dispute, slowdown
or stoppage actually pending or threatened against or affecting the Company. No
grievance which might have an adverse effect on the Company or Business or any
such arbitration proceeding arising out of or under collective bargaining
agreements is pending and no claim therefor exists. The Company has not
experienced any employee strike.
3.16 Employee and Labor Matters; Employee Benefit Plans.
(a) Schedule 3.16 sets forth a complete and correct list (all of which are
collectively referred to as the "Employee Benefit Plans") of all "employee
benefit plans," as defined in Section 3(3) of ERISA, all "specified fringe
benefit plans" as defined in Section 6039D of the Code, and all other bonus,
incentive compensation, deferred compensation, profit sharing, stock option,
severance, supplemental unemployment, layoff, salary continuation, retirement,
pension, health, life insurance, disability, group insurance, vacation, holiday,
sick leave, fringe benefit or welfare plan or employment, consulting, change in
control, independent contractor, professional services, confidentiality or
non-competition agreement or any other similar plan, agreement, policy or
understanding (whether oral or written, qualified or non-
14
qualified) and any trust, escrow or other funding arrangement related thereto,
(i) which is currently or has been at any time maintained or contributed to by
the Company, or (ii) with respect to which the Company has any liability or
obligations to any current or former officer, Employee, or service provider of
the Company or any ERISA Affiliate, or the dependents of any thereof, regardless
of whether funded, or (iii) which could result in the imposition of liability or
any obligation of any kind or nature, whether accrued, absolute, contingent,
direct, indirect, known or unknown, perfected or inchoate or otherwise and
whether or not now due or to become due, to the Company or an ERISA Affiliate.
(b) The Company and its ERISA Affiliates have never maintained or
contributed to any plan subject to Section 412 of the Code, Section 302 of ERISA
or Title IV of ERISA.
(c) There have been no prohibited transactions, breaches of fiduciary
duty or other breaches or violations of any law applicable to the Employee
Benefit Plans and related funding arrangements that could subject the Company to
any liability. Each Employee Benefit Plan intended to be qualified under Section
401(a) of the Code has a current favorable determination letter (or, in the case
of a standardized form or paired plan, a favorable opinion or notification
letter), and no event has occurred which could cause any Employee Benefit Plan
to become disqualified for purposes of Section 401(a) of the Code. Each Employee
Benefit Plan has been operated in compliance with applicable law, including
Section 401(a) of the Code and ERISA, as applicable, and in accordance with its
terms.
(d) All required reports, tax returns, documents and plan descriptions
of the Employee Benefit Plans have been timely filed with the IRS, DOL and PBGC
and/or, as appropriate, provided to participants in the Employee Benefit Plans.
(e) No written or oral representations have been made to any Employee
or former Employee of the Company promising or guaranteeing any employer payment
or funding, and no Employee Benefit Plans provide, for the continuation of
medical, dental, life or disability insurance coverage for any former Employee
of the Company for any period of time beyond the end of the current plan year
(except to the extent of coverage required under COBRA). The consummation of the
transactions contemplated by this Agreement will not accelerate the time of
vesting, of payment, or increase the amount, of compensation to any Employee,
officer, former Employee or former officer of the Company. No Employee Benefit
Plans or other contracts or arrangements provide for payments that would be
triggered by the consummation of the transactions contemplated by this Agreement
that would subject any person to excise tax under Section 4999 of the Code
(i.e., "golden parachute" taxes). All compensation amounts that have been paid
or are payable are or will become deductible by the Company pursuant to Section
162 of the Code.
(f) The Company and its ERISA Affiliates have complied with the
continuation coverage provisions of COBRA with respect to all current Employees
and former Employees.
(g) Neither the Company, any ERISA Affiliate nor any other employer
who has participated or is participating in any employer plan (a "Sponsor") has
incurred any liability to the DOL, the PBGC or the IRS in connection with any of
the Employee Benefit Plans, and no condition exists that presents a risk to the
Company or any Sponsor of incurring any liability to the DOL, the PBGC or the
IRS. There are no pending, or to the Knowledge of the Company, threatened or
anticipated claims, lawsuits or actions relating to, by, on behalf of or against
any Employee Benefit Plan (other than routine claims for benefits).
(h) The Company has paid in full all amounts which are required under
the terms of each Employee Benefit Plan to have been paid as of the date of this
Agreement. As of the Closing Date, the Company shall have paid in full all
liabilities accrued with respect to each Employee or former Employee in each
Employee Benefit Plan.
15
(i) All amounts required under any Employee Benefit Plan or
arrangement that provides for severance payments to Employees will be paid on or
prior to the completion of the transactions contemplated herein.
(j) For purposes of this Section 3.16, the term "ERISA Affiliate"
shall mean (i) any related company or trade or business that is required to be
aggregated with the Company under Code Sections 414(b), (c), (m) or (o); (ii)
any other company, entity or trade or business that has adopted or has ever
participated in any Employee Benefit Plan; and (iii) any predecessor or
successor company or trade or business of the Company or any entity described in
Section 3.16 (j)(i) and 3.16 (j)(ii).
(k) For purposes of this Section 3.16, the term "Employee" shall be
considered to include individuals rendering personal services to the Company as
independent contractors and leased employees as defined in Code Section 414(n)
and the regulations promulgated pursuant thereto.
(l) Schedule 3.16(l) hereto sets forth the Company's obligation to its
employees with respect to all compensation, vacation, paid time off, sick leave
and holiday benefits.
(m) Schedule 3.16 (m) hereto sets forth the Company's obligations, on
an individual basis, to former employees who have elected COBRA coverage.
3.17 Litigation. Except as otherwise set forth on Schedule 3.17, there is
no litigation, arbitration, governmental claim, investigation or proceeding,
whether related to a Credit Card Company or otherwise, proceeding pending or, to
the Knowledge of Sellers, threatened against the Company at law or in equity
before any court or other governmental agency or before any applicable agent of
a Credit Card Company. Except as otherwise set forth on Schedule 3.17, there are
no pending, or to the Knowledge of Sellers, threatened claims, litigation or
other action relating to any Employee Benefit Plan (other than ordinary course
claims for benefits). No such proceeding set forth on Schedule 3.17 prohibits or
adversely affects the transactions contemplated hereby or the ownership or other
rights with respect to the Assets.
3.18 Compliance. Except as noted in Schedule 3.18, the Company is in
compliance in all material respects with all applicable local, state and federal
laws, ordinances, regulations, court or administrative orders or decrees. The
Company is in full compliance with all of the rules and regulations of
applicable Credit Card Companies. Except as noted in Schedule 3.18, the Company
has obtained, and kept in current, all required licenses and consents to engage
in the Business. To the Knowledge of the Company, and except as noted in
Schedule 3.18, there have been no past and there are no current material
investigations, proceedings, claims, actions, suits, demands or notices with
respect to past or current business conduct or practices of the Company.
3.19 Environmental Matters. To the Knowledge of the Company and except as
otherwise set forth on Schedule 3.19, during the term of Company's occupancy of
the offices leased by the Company, the Company has complied in all material
respects with all applicable federal, state, local, and foreign environmental
laws relating to pollution or the protection of human health and the environment
and the requirements of any permits, licenses, or authorizations issued under
such environmental laws with respect to any Real Property.
3.20 Certain Payments. To the Knowledge of the Company, and except as set
forth on Schedule 3.20, neither the Company, any Controlling Shareholder nor any
equity owner, director, officer, agent, or employee of the Company, or any other
person associated with or acting for or on behalf of the Company, has directly
or indirectly (i) made any illegal contribution, gift, bribe, rebate, payoff,
influence payment, kickback or other payment to any person, private or public,
regardless of form, whether in
16
money, property, or services (A) to obtain favorable treatment in securing
business, (B) to pay for favorable treatment for business secured, (C) to obtain
special concessions or for special concessions already obtained, for or in
respect of the Business or any affiliate of the Company, or (D) in violation of
any law, or (ii) established or maintained any fund or asset that has not been
recorded in the books and records of the Company.
3.21 No Conflict of Interest. Neither of the shareholders nor any of their
affiliates owns, directly or indirectly (except in the capacity as a
shareholder), in whole or in part, any real or personal property, tangible or
intangible, which the Company is now using or the use of which is necessary for
the Business. Except as set forth in Schedule 3.21, no officer, director or
shareholder of the Company, or any person in the family of or who is a partner
of any officer, director or shareholder of the Company, (i) is indebted to the
Company, or (ii) has any direct or indirect ownership interest in (A) any entity
that sells goods or services to the Company, (B) any other entity with which the
Company has a business relationship or (C) in any entity that competes with the
Company.
3.22 Investment.
(a) The Company and, indirectly, each of the shareholders of the Company
(the "CPS Shareholders"), are acquiring the Stock for their own account and not
with a view to the distribution thereof within the meaning of the 1933 Act.
(b) The Company and the CPS Shareholders, are not relying upon any
representation or warranty of Buyer, Holdings, any of their respective officers,
directors, employees, agents, representatives or affiliates, except for those
representations and warranties set forth in this Agreement, any other agreements
contemplated hereby, the Schedules hereto and such certificates and other
instruments required to be delivered pursuant to the terms hereof.
(c) The Company and the CPS Shareholders, except for those listed on
Schedule 3.22(c), are "accredited investors" under Regulation D ("Regulation D")
promulgated under the Securities Act and each meets at least one of the
following qualifications: (i) any natural person whose individual net worth, or
joint net worth with that person's spouse, at the time of the purchase exceeds
$1,000,000; (ii) any natural person who had an individual income in excess of
$200,000 in each of the two most recent years or joint income with that person's
spouse in excess of $300,000 in each of those years and who reasonably expects
to reach the same income level in the current year; or, in the case of the
Company and the CPS Shareholders, (iii) one of the other definitions of
"accredited investors" described in paragraphs (1), (2), (3), (4), (7) or (8) of
Rule 501(a) of Regulation D.
(d) Those listed on Schedule 3.22(c), either individually, or with his/her
purchaser representative(s), as defined in Rule 501(h) of Regulation D, has such
knowledge and experience in financial and business matters that he is capable of
evaluating the merits and risks of the prospective investment; provided however,
that in no event shall the number of shareholders that fall under this
subsection (d) exceed 35.
(e) Additionally, the Company and the CPS Shareholders represent that (i)
each can bear the economic risk of losing their entire investment; (ii) their
overall commitment to investments that are not readily marketable is not
disproportionate to their net worth, and their investment in the Stock will not
cause such overall commitment to become excessive; (iii) each has substantial
experience in making investment decisions of this type or are relying on their
own tax advisor and a purchaser representative in making this investment
decision; and (iv) the objectives of Holdings are compatible with their
investment goals.
17
(f) The Company and the CPS Shareholders are aware that as of the Closing
Date, the Stock will not have been registered under the 1933 Act or any state's
securities laws. Each Seller further understands that the certificates
representing the Stock will include an appropriate legend to the effect that
such securities have not been registered under the 1933 Act or any state's
securities laws and that such securities may not be sold or transferred except
in compliance with the 1933 Act and applicable state securities laws.
(g) The Company and the Shareholders know and understand that the Stock has
not been registered under the 1933 Act by reason of specified exemption from the
registration provisions of the 1933 Act which depends upon, among other things,
the bona fide nature of each Seller's investment intent as expressed herein.
(h) The Company and the CPS Shareholders know and understand that the Stock
must be held indefinitely unless subsequently registered under the 1933 Act or
an exemption from such registration is available. The Company and the CPS
Shareholders have been advised or are aware of the provisions of Rule 144
promulgated under the 1933 Act, which permits limited resale of shares purchased
in a private placement subject to the satisfaction of certain conditions and
that such rule may not become available for resale of the Stock.
(i) The Company and the CPS Shareholders know and understand that they have
been given access to full and complete information regarding Buyer and Holdings,
have had the opportunity to meet with officers of Buyer and Holdings, have had
the opportunity to review all documents requested by such Seller in writing and
have utilized such access and opportunity to its own satisfaction for the
purpose of obtaining such information. The Company and the CPS Shareholders have
been given the opportunity to attend a meeting with officers of Buyer and
Holdings for the purpose of asking questions of, and receiving answers from,
such representatives concerning the business of Buyer and Holdings, the capital
structure of Holdings and such other additional information as each deems
necessary to make an informed investment decision relating to the Stock and to
verify the accuracy of such information.
3.23 Disclosure. No representation or warranty made herein by the Company
or any Controlling Shareholder, nor in any statement, certificate or instrument
to be furnished to the Buyer or Holdings by the Company or any Controlling
Shareholder pursuant to any Company Ancillary Document or Shareholder Ancillary
Document contains or will contain any untrue statement of a material fact or
omits or will omit to state any material fact necessary in order to make the
statements and information contained herein or therein not misleading.
3.24 Xxxxxxxxxxx.xxx, LLC. Set forth on Schedule 3.24 are all the members
and employees of Xxxxxxxxxxx.xxx, L.L.C.
3.25 Attrition Rate.
(a) The monthly attrition rate of the Company's Merchants between December
31, 2002 and the date of this agreement has not exceeded 3%.
(b) The Sellers have no reason to expect, nor are they aware of any facts
or circumstances existing or reasonably anticipated to occur in the future that
would cause the Attrition Rate to, as a percentage of gross revenue, exceed the
historical levels described in Section 3.25(a).
(c) except as noted in Schedule 3.25(c), to the Knowledge of Sellers, no
employees of the Company nor any of the active Merchants have in the past or are
presently engaging in fraud in relation to the Business.
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3.26 Real Property. At no time has the Company had any ownership interest,
directly or indirectly, in any real property
3.27 Chargebacks.
(a) Schedule 3.27(a) hereto sets forth the Chargeback experience related to
the Business of the Sellers for the past six months;
(b) The Sellers do not know of any facts or circumstances that would
indicate that the Chargebacks will exceed the historical levels described in
Schedule 3.27(a); and
(d) The Company has handled and processed all Chargebacks in the ordinary
course consistent with the rules of the Card Associations.
3.28 Leasing Losses.
(a) The Losses of the Company arising or related to its leasing of
equipment during the period from December 31, 2002 and the Effective Time, have
not exceeded $10,000 in the aggregate.
(b) The Sellers have no reason to expect, nor are they aware of facts or
circumstances existing or reasonably anticipated to occur in the future, that
Losses relating to or arising out of the Company's leasing activities would
exceed historical levels.
3.29 Franchise Issues. To the Sellers' Knowledge, the Company and its
Subsidiaries are in material compliance with all federal and state statutes,
rules, regulations and guidelines, if applicable, regarding the offer of
franchises or business opportunities.
3.30 Ownership and Portability of Merchant Accounts. Except as noted in
Schedule 3.30, the Company owns all Merchant Accounts free and clear of all
encumbrances, other than liens provided for in the Sponsorship Agreement. To the
Company's knowledge all such Merchant Accounts are processed under unique BINS
and ICAs. Except as noted in Schedule 3.30 and subject to the terms of the
Processing Agreement and Sponsorship Agreement, the Company has the ability to
assign the Merchant Contracts relating to the Merchants so identified, including
all Merchant files and records (paper and fiche), related merchant reserve and
hold accounts.
3.31 Employees and Independent Contractors.
(a) Set forth on Schedule 3.14 is a true, complete and correct list setting
forth as of the date hereof (a) the names, location of services and current
compensation of all individuals currently employed directly or indirectly by the
Company on a salaried or hourly basis, and (b) the names and total annual
compensation for all independent contractors (other than vendors and similar
professionals) who render services on a regular basis to the Company for whom
the Company prepared an IRS Form 1099 for fiscal year 2002 and whose total
annual compensation is in excess of $10,000.
(b) To the Company's Knowledge, all non-employee/independent persons that
solicit Merchants for or on behalf of the Company have, at all times during
their relationship with the Company, been properly classified as independent
contractors and not employees of the Company for purposes of federal, state and
local employment tax purposes.
(c) Set forth in Schedule 3.31 is a true, complete and correct list setting
forth as of the date hereof the names of all employees, agents and independent
contractors of the Company and its
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Subsidiaries and the amount of all retention payments, severance payments,
change in control payments or other similar compensation or benefits which are
or may become payable in connection with the consummation of the transactions
contemplated by this Agreement. The Company and its Subsidiaries have taken no
actions prior to the Closing related to the foregoing that will subject it,
Holdings or any of its Subsidiaries to liability after the Closing other than
payment of the foregoing by the Company and its Subsidiaries.
3.32 Dissenters' Rights. The Company has received no notice from a
stockholder that such stockholder will seek to exercise his or her statutory
appraisal rights under the laws of California. No shareholder of the Company has
a legal right to exercise his or her appraisal rights after the Closing Date.
3.33 Independent Agent Contracts. Each of the Company's sales agents are a
party to written agreements which do not differ materially from the form
attached hereto as Exhibit 1.01(t), except as noted on Schedule 3.33.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER AND HOLDINGS
Each of Buyer and Holdings hereby, jointly and severally, represents and
warrants to the Company and each Controlling Shareholder as follows as of the
date of this Agreement and as of the Closing Date:
4.01 Corporate Organization; Etc. Buyer is a limited liability company and
Holdings is a corporation, both duly organized, validly existing and in good
standing under the laws of the States of Delaware. Each of the Buyer and
Holdings has full power and authority to carry on its business as it is now
being conducted and to own the properties and assets it now owns. Each of the
Buyer and Holdings is duly qualified to do business and is in good standing in
the jurisdictions set forth in Schedule 4.01, except where the failure to be so
qualified or in good standing would have a material adverse effect on the
Buyer's or Holdings' business, as applicable or the results of operations of the
Buyer or Holdings, as applicable.
4.02 Buyer's Corporate Powers; Absence of Conflicts With Other Agreements,
etc.
(a) The execution, delivery and performance by the Buyer of this
Agreement and the other agreements and transactions contemplated hereby:
(i) are within the Buyer's powers, are not in contravention of
the terms of the Buyer's Certificate of Formation, Limited Liability
Company Agreement, or resolutions of the Board of Representatives or
interestholders of Buyer, and have been duly authorized by the Board
of Representatives of the Buyer, as and to the extent required by the
Buyer's Limited Liability Company Agreement and applicable law; and
(ii) except as set forth on Schedule 4.02, (A) will not
constitute a violation of any judgment, decree, or order of any court
of competent jurisdiction applicable to the Buyer, (B) will not
violate any law, rule or regulation of any governmental authority
applicable to the Buyer, (C) will not require any consent, approval or
authorization of, or notice to, or declaration, filing or registration
with, any governmental or regulatory authority, and (D) whether with
or without notice, the lapse of time or both, will not conflict with,
result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate,
terminate, modify, or cancel, or require any
20
notice under any agreement, contract, lease, license, instrument, or
other arrangement to which the Buyer is a party or by which it is
bound.
(b) This Agreement has been duly and validly executed and
delivered by the Buyer and, as of the Closing, each of the Buyer Ancillary
Documents will have been duly and validly executed and delivered by the Buyer.
This Agreement constitutes, and upon their execution and delivery, each of the
Buyer Ancillary Documents will constitute, the valid, legal and binding
obligation of the Buyer, enforceable against it in accordance with their terms.
4.03 Holdings' Corporate Powers; Absence of Conflicts With Other
Agreements, etc.
(a) The execution, delivery and performance by Holdings of this
Agreement and the other agreements and transactions contemplated hereby:
(i) are within Holdings' corporate powers, are not in
contravention of the terms of Holdings' Certificate of Incorporation,
Bylaws, or resolutions of the Board of Directors or shareholders of
Holdings, and have been duly authorized by the Board of Directors of
Holdings, as and to the extent required by the Holdings' Certificate
of Incorporation and applicable law; and
(ii) except as set forth on Schedule 4.03, (A) will not
constitute a violation of any judgment, decree, or order of any court
of competent jurisdiction applicable to Holdings, (B) will not violate
any law, rule or regulation of any governmental authority applicable
to Holdings, (C) will not require any consent, approval or
authorization of, or notice to, or declaration, filing or registration
with, any governmental or regulatory authority, and (D) whether with
or without notice, the lapse of time or both, will not conflict with,
result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate,
terminate, modify, or cancel, or require any notice under any material
agreement, contract, lease, license, instrument, or other arrangement
to which Holdings is a party or by which it is bound.
(b) This Agreement has been duly and validly executed and delivered by
Holdings and, as of the Closing, each of the Holdings Ancillary Documents will
have been duly and validly executed and delivered by Holdings. This Agreement
constitutes, and upon their execution and delivery, each of the Holdings
Ancillary Documents will constitute, the valid, legal and binding obligation of
the Holdings, enforceable against it in accordance with their terms.
4.04 Capitalization. As of July 29, 2003, the authorized capital stock of
Holdings consists of 180,000,000 shares of common stock, par value $0.01 per
share, of which 16,244,509 shares are issued and outstanding (without giving
effect to the provisions of this Agreement) and 20,000,000 shares of Class A
preferred stock, par value $0.01 per share, of which 0 shares are issued and
outstanding. There are no other classes of securities of Holdings outstanding.
The authorized interest units of the Buyer consists of 10,000 units, of which 1
unit is issued and outstanding to Holdings. Except as otherwise disclosed on
Schedule 4.04, (i) no subscription, warrant, option, convertible security or
other right to purchase or acquire any shares of the capital stock of Holdings
from Holdings is outstanding (excluding the rights of Sellers); (ii) Holdings
has no obligation to issue any warrant, option, convertible security or other
such right or to issue or distribute to holders of any shares of the capital
stock of Holdings any evidence of indebtedness or assets of Holdings; and (iii)
there are no outstanding or authorized stock appreciation, phantom stock or
similar rights with respect to Holdings. All of the issued and outstanding
shares of capital stock of the Buyer are owned by Holdings. The Stock, when
issued and delivered in
21
accordance with the terms of and for the consideration expressed in this
Agreement, will be duly and validly issued, fully paid and nonassessable.
4.05 Compliance. Except where the failure to be in compliance would not
have a material effect on Buyer: (i) the Buyer is in compliance in all material
respects with all applicable local, state and federal laws, ordinances,
regulations, court or administrative orders or decrees; and (ii) the Buyer is in
full compliance with all of the applicable rules and regulations of applicable
Credit Card Companies.
4.06 Litigation. Except as set forth on Schedule 4.06, there is no
litigation, arbitration, governmental claim, investigation or proceeding,
whether relating to a Credit Card Company or otherwise, pending or, to the
Knowledge of Holdings, threatened against the Buyer or Holdings at law or in
equity before any court or other governmental agency or before any applicable
agent of a Credit Card Company that are reasonably likely to have a material
adverse effect on the business of buyer or Holdings. No such proceeding concerns
the transactions contemplated hereby.
4.07 Disclosure. No representation or warranty made herein by the Buyer or
Holdings, nor in any statement, certificate or instrument to be furnished to the
Sellers by the Buyer or Holdings pursuant to any Buyer Ancillary Document or
Holdings Ancillary Document contains or will contain any untrue statement of a
material fact or omits or will omit to state any material fact necessary in
order to make the statements and information contained herein or therein not
misleading.
4.08 Disclosure to the SEC. No statement, report, filing, disclosure,
document or any other information transmitted to the SEC by Holdings, including
those attached as exhibits to the Confidential Disclosure Memorandum, contained,
at the time of filing, any untrue statement of a material fact, or omitted to
state any material fact necessary in order to make the statements and
information contained therein not misleading in any material respect.
ARTICLE V
COVENANTS PRIOR TO CLOSING
5.01 Commercially Reasonable Efforts. Each of the parties hereto will use
commercially reasonable efforts to take all action and to do all things
necessary, proper or advisable to consummate the transactions contemplated by
this Agreement. Each of the parties hereto will use commercially reasonable
efforts to secure all consents and approvals required to carry out the
transactions contemplated by this Agreement and to satisfy all other conditions
to the obligations of the parties hereunder. Notwithstanding the foregoing,
(a) the Company will give any notices of assignment to third parties
required to be provided pursuant to any of the Assumed Contracts; and
(b) each of the Sellers will use its best efforts to obtain any third
party consents required in order to assign the Assumed Contracts to Buyer,
including without limitation the consents listed in Schedule 5.05 attached
hereto.
5.02 Termination or Merger of Employee Benefit Plans. If requested by
Buyer, prior to the Closing, the Company hereby covenants and agrees to freeze,
terminate, amend, merge, or take other action with respect to any Employee
Benefit Plan that Buyer, in its sole discretion, deems advisable and not
inconsistent with this Agreement; to take all steps necessary to accomplish such
requests, including terminating any Employee Benefit Plan; to provide all the
required notices to participants and appropriate governmental agencies; to adopt
all necessary resolutions and Employee Benefit Plan amendments in
22
order to accomplish such requests; and to provide to Buyer satisfactory evidence
of the executed documents described in this Section 5.06.
5.03 No Solicitation of Other Offers. Neither the Company nor any
Controlling Shareholder, acting through any director, officer or other agent
(including any investment banker, attorney, accountant or other representative
retained by it), shall solicit or encourage, including by way of furnishing
information, any inquiries or the making of any proposal which may reasonably be
expected to lead to the acquisition of any of the capital stock of the Company
or a substantial portion of the Assets. Neither the Company nor any Controlling
Shareholder will, prior to the Closing, enter into or conduct any discussions
with any other prospective purchaser of any or all of the capital stock of the
Company or the Assets regarding such a purchase or enter into any agreement or
negotiations with respect to the disposition of any or all of the capital stock
of the Company or the Assets, regardless of the form of the transaction, without
the written consent of Buyer. The Company and each Controlling Shareholder shall
promptly advise Buyer in writing of any such inquiries, proposals or discussions
received by the Company or a Controlling Shareholder after the date hereof.
5.04 Confidentiality and Public Announcements. Except as and to the extent
required by law, Holdings, Buyer, and Sellers hereby agree not to disclose or
use, and each shall cause its representatives not to disclose or use, any
confidential information with respect to the other party hereto furnished, or to
be furnished, by such other party or their representatives in connection
herewith at any time or in any manner other than in connection with its
evaluation of the transactions contemplated herein, including without limitation
the terms and conditions of this Agreement. In the event of termination pursuant
to Article X, the parties shall return all documents and other materials
previously delivered concerning the transactions contemplated hereby to the
party that provided such information. Neither Holdings nor the Sellers nor any
of their representatives shall make any public announcement with respect to this
Agreement without the prior written consent of the other parties to this
Agreement, except that Holdings shall not be required to obtain consent to make
any disclosure required by law.
5.05 Tax Disclosure. Notwithstanding anything herein to the contrary, the
parties hereto (and their employees, representatives and other agents) may
consult any tax advisor regarding the tax treatment and tax structure of the
transactions contemplated by this Agreement and may disclose to any and all
persons, without limitation of any kind, the tax treatment and tax structure of
the transactions contemplated by this Agreement and all materials of any kind
(including opinions or other tax analyses) that are provided to the parties
relating to such tax treatment and tax structure. However, any such information
relating to the tax treatment or tax structure is required to be kept
confidential to the extent necessary to comply with any applicable federal or
state securities laws.
ARTICLE VI
CONDITIONS TO CLOSING BY SELLERS
The obligations of the Company and each Controlling Shareholder to close
the transactions contemplated by this Agreement shall be subject to the
satisfaction of the following conditions. Upon Closing, each of the Sellers
shall be deemed to have waived any unsatisfied conditions; provided, however,
the waiver of any such conditions shall not be deemed to waive or impair any
rights Sellers may have with respect to the representations and warranties made
by Buyer.
6.01 Compliance. The representations and warranties of Buyer and Holdings
made in this Agreement qualified as to materiality shall be true and correct,
and those not so qualified shall be true and correct in all material respects,
as of the date hereof and as of the time of the Closing as though made as of
such time, except to the extent such representations and warranties expressly
relate to an earlier date (in which case such representations and warranties
qualified as to materiality shall be true and correct, and
23
those not so qualified shall be true and correct in all material respects, on
and as of such earlier date). Each of Buyer and Holdings shall have duly
performed, complied with and satisfied in all material respects all covenants,
agreements and conditions required by this Agreement to be performed, complied
with or satisfied by it by the time of the Closing.
6.02 Action; Proceeding. No action, proceeding, investigation or
administrative hearing before a court or any other governmental agency or body
shall have been instituted or threatened against the Company or any Controlling
Shareholder which seeks injunctive relief in anticipation of the sale of the
Assets and may reasonably be expected to prohibit the consummation of the
transactions contemplated hereby or seeks damages in a material amount by reason
of the consummation of such transactions.
6.03 Delivery of Certain Documents. At the Closing, the Buyer shall have
delivered to the Company all of the documents, agreements and instruments
contemplated by Section 2.03.
6.04 Employment Agreements. By the Closing, Holdings and/or Buyer shall
enter into employment agreements with Xxxxxxx X. Xxxxx and Xxxxxxx X. Hymen,
individually, substantially in the form attached hereto as Exhibits 2.02(i) and
2.02(ii).
6.05 Non-Compete Agreements. By the Closing, all the members and employees
of Xxxxxxxxxxx.xxx, set forth in Schedule 3.24, shall execute a Non-Compete
Agreement substantially in the form attached hereto as Exhibit 2.02(h).
ARTICLE VII
CONDITIONS TO CLOSING BY BUYER AND HOLDINGS
The obligations of Buyer and Holdings to close the transactions
contemplated by this Agreement shall be subject to the satisfaction of the
following conditions. Upon Closing, each of Buyer and Holdings shall be deemed
to have waived any unsatisfied conditions; provided, however, the waiver of any
such conditions shall not be deemed to waive or impair any rights Buyer or
Holdings may have with respect to the representations and warranties made by the
Sellers.
7.01 Compliance. The representations and warranties of the Sellers made in
this Agreement qualified as to materiality shall be true and correct, and those
not so qualified shall be true and correct in all material respects, as of the
date hereof and as of the time of the Closing as though made as of such time,
except to the extent such representations and warranties expressly relate to an
earlier date (in which case such representations and warranties qualified as to
materiality shall be true and correct, and those not so qualified shall be true
and correct in all material respects, on and as of such earlier date). Sellers
shall have duly performed, complied with and satisfied in all material respects
all covenants, agreements and conditions required by this Agreement to be
performed, complied with or satisfied by it by the time of the Closing.
7.02 Action; Proceeding. No action, proceeding, investigation or
administrative hearing before a court or any other governmental agency or body
shall have been instituted or threatened against the Buyer or Holdings which
seeks injunctive relief in anticipation of the sale of the Assets and may
reasonably be expected to prohibit the consummation of the transactions
contemplated hereby or seeks damages in a material amount by reason of the
consummation of such transactions.
7.03 Delivery of Certain Documents. At the Closing, the Company shall have
delivered to Buyer and Holdings all documents, agreements and instruments
contemplated by Section 2.02.
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7.04 Pension Plan Liability. The Buyer shall be satisfied that it will
incur no liability with respect to any Employee Benefit Plan or other pension or
post-retirement benefits provided by the Company.
7.05 License..The Buyer shall have received a License Agreement in
substantially the form attached as Exhibit 2.02(f), executed by all the members
of Xxxxxxxxxxx.xxx, L.L.C.
7.06 UCC Lien Search. The Buyer shall have received a satisfactory UCC lien
search on the Company from the office of the Secretary of State of the Company's
state of incorporation and each state listed in Schedule 3.01, and from the
appropriate office in each county in which the Company has business operations.
Such lien searches will be conducted by an entity or individual acceptable to
the Buyer at the Buyer's sole expense. The Buyer shall have received
satisfactory evidence of the release or termination of any such lien requested
by Buyer. Buyer shall assume responsibility for obtaining the UCC lien search.
7.07 Intentionally Omitted.
7.08 Intentionally Omitted.
7.09 Name Change. The Company shall have filed articles of amendment to its
Articles of Incorporation with the Secretary of State of California changing the
name of the Company to CSI Holdings, Inc. The effective date of such amendment
shall be no later than thirty (30) days following the Closing Date.
7.10 No Adverse Change. There shall not have been any change between the
date of the latest Financial Statements and the Closing Date which has had or
will have a material adverse effect on the business, operations, financial
condition, Assets or prospects of the Company, and a certificate shall have been
delivered to Buyer to such effect signed by the each Controlling Shareholder and
such officers of the Company as Buyer may request.
ARTICLE VIII
POST CLOSING COVENANTS
8.01 Offerees.
(a) Provided that Company shall have delivered Schedule 3.14(a) to
Buyer not less than ten (10) days prior to Closing, Buyer shall offer at-will
employment to all employees listed on Schedule 3.14(a) who are employed by
Company at Closing, except as otherwise set forth on Schedule 8.01 hereto and as
otherwise provided hereinbelow (the employees who receive such employment offers
from Buyer are collectively referred to herein as the "Offerees"). Such offers
shall be for positions and at compensation comparable, excluding employee
benefits, to that enjoyed by such Offerees immediately prior to Closing.
Notwithstanding the foregoing, Buyer does not commit to and does not guarantee
the continued employment of any such individuals for any definite period
following Closing and Buyer hereby acknowledges that either it or any Offeree
may terminate the employment relationship for any or no reason at any time after
Closing. Nothing herein shall be deemed to affect or limit in any way normal
management prerogatives of Buyer with respect to employees or to create or grant
to any such employee or Offeree third-party beneficiary rights or claims or
causes of action of any kind or nature.
(b) With respect to (i) any employee of Company to whom Buyer does not
offer employment, (ii) any Offeree who does not accept Buyer's offer of
employment or (iii) any Offeree who may accept such offer, but fails to perform
any services for Buyer (collectively, the "Non-Offerees"),
25
Sellers shall retain the obligation for providing COBRA notices and continuation
coverage under Section 4980B of the Code and Section 601 of ERISA and shall
offer COBRA continuation coverage under its group health, dental or other
medical plans to such Non-Offerees for as long as such Non-Offerees are entitled
to COBRA continuation coverage under the law. Further, Sellers agree to
indemnify and hold Buyer and its group health plan harmless in the event Buyer
or Holdings or its group health plan shall be liable for any COBRA continuation
coverage, or any claim or liability with respect thereto, for any of the
Non-Offerees.
8.02 Further Assurances. From time to time, as and when reasonably
requested by another party hereto, a party hereto shall execute and deliver, or
cause to be executed and delivered, all such documents and instruments and shall
take, or cause to be taken, all such further acts or other actions as such other
party may reasonably deem necessary or desirable to consummate the transactions
contemplated by this Agreement.
Without limiting the generality of the foregoing, Sellers shall execute and
deliver to Buyer such documents and instruments as are reasonably necessary to
transfer the URL's and domain names that comprise a portion of the Owned
Intellectual Property, including without limitation the URLs and domain names
set forth on Schedule 1.01(c).
8.03 Merchant Reserves. After the Closing, neither the Company nor any
Controlling Shareholder shall draw or make any claim against, or agree to
release, any Merchant Reserve Account or any security deposit held by Processor
on behalf of any Merchant, except for any losses incurred by the Company to
Processor relating to transactions by the Merchants prior to the Closing that
are otherwise not recovered by or reimbursed to the Company.
8.04 Trailing Activities. Until the date that is nine (9) months after the
Closing, the Sellers will assist the Buyer in resolving any trailing activity
related to the Merchant Accounts, including without limitation Chargebacks (as
defined in the applicable rules and regulations of Visa and/or MasterCard) and
representments.
8.05 Name Change. The Sellers acknowledge and agree that, except as
provided in Schedule 3.04, the Buyer will acquire as part of the Assets the
exclusive right to use the name "CardPayment Solutions, Inc.", and any variation
thereof and the goodwill associated therewith and that neither the Company nor
any Controlling Shareholder will use the name "CardPayment Solutions, Inc." or
any derivative thereof subsequent to the Closing, except the Company may use the
name "CardPayment Solutions, Inc." for a period of thirty (30) days from the
Closing Date. The Company further covenants and agrees that, within ten (10)
days of the Closing Date, the Company will file an amendment to its Articles of
Incorporation changing its name to CSI Holdings, Inc. and that such amendment
shall have an effective date that is not more than thirty (30) days following
the Closing Date.
8.06 Existence. The Controlling Shareholders hereby covenant and agree that
the Company shall not be dissolved without the consent of Holdings during the
eighteen (18) month period immediately following Closing.
8.07 Xxxxxxxxxxx.xxx, L.L.C. The members of Xxxxxxxxxxx.xxx, L.L.C. shall
cause the dissolution of Xxxxxxxxxxx.xxx, L.L.C. within 30 days of the Closing
Date.
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ARTICLE IX
INDEMNIFICATION
9.01 Indemnification of Buyer and Holdings. Subject to the terms of this
Article IX, the Company and each Controlling Shareholder (collectively, the
"Seller Indemnifying Parties"), jointly and severally, agree to defend,
indemnify and hold harmless Buyer, Holdings, each officer, director, employee or
agent thereof, their respective controlling persons, and their respective
estates, successors, and assigns (collectively, the "Seller Indemnified Parties"
and each an "Indemnified Party"), from and against any and all Losses reasonably
incurred by such Indemnified Party as a result of:
(a) the untruth, inaccuracy or breach of any representation or
warranty made by the Company and/or by a Controlling Shareholder pursuant to
Article III of this Agreement, any Company Ancillary Document or any Shareholder
Ancillary Document;
(b) the nonfulfillment or breach of any covenant, agreement or
obligation of the Company and/or by the Controlling Shareholders contained in
this Agreement, any Company Ancillary Document, CPS Shareholder Ancillary
Document or Controlling Shareholder Ancillary Document;
(c) any claim or demand by any person asserting any interest in the
Assets or seeking dissenters' or appraisal rights or any other claim in respect
to the transactions contemplated by this Agreement;
(d) any liability or claim arising out of the operation of the
Business prior to the Closing which is imposed upon Buyer or Holdings, except
the Assumed Chargeback Liabilities;
(e) any liability or claim arising out of the operation of the
Business prior to the Closing which is imposed upon Buyer or Holdings, except
for the Assumed Chargeback Liabilities and others to the extent such liability
or claim has been expressly assumed by Buyer pursuant to the Assignment and
Assumption Agreement;
(f) any liability or claim arising out of an investigation, holdback
or other action taken with respect to a merchant which is initiated by the
Company prior to Closing;
(g) any liability arising from a violation of any federal, state or
local law before the Closing Date, including without limitation, any violation
of ERISA, HIPAA, COBRA;
(h) any liability arising from the Company's improper classification
of any individual as an independent contractor, non-employee or employee prior
to the Closing, including without limitation liability relating to Employee
Benefit Plan coverage, Taxes and workers compensation; and
(i) any liability arising from the operation, establishment or
termination of any employee benefit plan, ERISA or COBRA.
9.02 Indemnification of the Company and the Shareholders. Subject to the
terms of this Article IX, Buyer and Holdings, jointly and severally, shall
indemnify and hold harmless each Controlling Shareholder, the Company, each
officer, director, employee or agent thereof, their respective controlling
persons, and their respective estates, successors, and assigns (collectively,
the "Buyer Indemnified Parties" and each an "Indemnified Party"), from and
against any and all Losses reasonably incurred by such Indemnified Party as a
result of:
27
(a) the untruth, inaccuracy or breach of any representation or
warranty made by the Buyer or Holdings in this Agreement, any Buyer Ancillary
Document or in any Holdings Ancillary Document;
(b) the nonfulfillment or breach of any covenant, agreement or
obligation of Buyer or Holdings contained in this Agreement, any Buyer Ancillary
Document or in any Holdings Ancillary Document; and
(c) any liability imposed upon the Company or any of its officers,
directors, employees or shareholders, to the extent that such liability has been
expressly assumed by Buyer pursuant to this Agreement or the Assignment and
Assumption Agreement.
9.03 Procedure for Indemnification - Non Third Party Claims. Whenever any
claim shall arise for indemnification hereunder not involving a Proceeding (as
hereinafter defined), the Indemnified Party shall notify the indemnifying party
promptly after such Indemnified Party has actual Knowledge of the facts
constituting the basis for such claim. The notice to the indemnifying party
shall specify, if known, the amount or an estimate of the amount of the
liability arising therefrom.
9.04 Procedure for Indemnification - Third Party Claims.
(a) Promptly after receipt by an Indemnified Party of notice of the
commencement of any Proceeding, such Indemnified Party will, if a claim is to be
made against an indemnifying party pursuant to this Article IX, give notice to
the indemnifying party of the commencement of the Proceeding, but the failure to
notify the indemnifying party will not relieve the indemnifying party of any
liability that it may have to the Indemnified Party, except to the extent that
the indemnifying party demonstrates that the defense of such action is
prejudiced by the indemnified party's failure to give such notice.
(b) If any Proceeding referred to in Section 9.04(a) is brought
against an Indemnified Party and such Indemnified Party gives notice to the
indemnifying party of the commencement of such Proceeding, the indemnifying
party will be entitled to participate in such Proceeding and, to the extent that
it wishes (unless the indemnifying party is also a party to such Proceeding and
the Indemnified Party determines in good faith that joint representation would
be inappropriate), to assume the defense of such Proceeding with counsel
satisfactory to the Indemnified Party and, after notice from the indemnifying
party to the Indemnified Party of its election to assume the defense of such
Proceeding, the indemnifying party will not, as long as it diligently conducts
such defense, be liable to the Indemnified Party under this Section 9.04 for any
fees of other counsel or any other expenses with respect to the defense of such
Proceeding, incurred by the Indemnified Party in connection with the defense of
such Proceeding, other than reasonable costs of investigation. If the
indemnifying party assumes the defense of a proceeding, (y) it will be
conclusively established for purposes of this Agreement that the claims made in
the Proceeding are within the scope of and subject to indemnification in
accordance with this Article IX and (z) no compromise or settlement of such
claims may be effected by the indemnifying party without the Indemnified Party's
consent unless (I) there is no finding or admission of any violation of legal
requirements or any violation of the rights of any person and no effect on any
other claims that may be made against the Indemnified Party; and (II) the sole
relief provided is monetary damages that are paid in full by the indemnifying
party; and (III) the Indemnified Party will have no liability with respect to
any compromise or settlement of such claims effected without its consent. If
notice is given to an indemnifying party of the commencement of any Proceeding
and the indemnifying party does not, within ten days after the Indemnified
Party's notice is given, give notice to the indemnified party of its election to
assume the defense of such Proceeding, the indemnifying party will be bound by
any determination made in such Proceeding or any compromise or settlement
effected by the Indemnified Party.
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(c) Notwithstanding the foregoing, if an Indemnified
Party determines in good faith that there is a reasonable probability that a
Proceeding may adversely affect it or its affiliates other than as a result of
monetary damages for which it would be entitled to indemnification under this
Agreement, the Indemnified Party may, by notice to the indemnifying party,
assume the exclusive right to defend, compromise or settle. If the indemnifying
party does not assume the defense of any claim or litigation, any Indemnified
Party may defend against such claim or litigation in such manner as it may deem
appropriate, including, but not limited to, settling such claim or litigation,
after giving notice of the same to the indemnifying party, on such terms as the
Indemnified Party may deem appropriate. The indemnifying party will promptly
reimburse the Indemnified Party in accordance with the provisions hereof.
9.05 Survival Claims Period. No claim for indemnification may be asserted
hereunder unless the Indemnified Party gives the indemnifying party notice of
such claim before the end of the applicable Survival Period; provided that where
notice of such claim has been timely given, such claim shall survive the
expiration of the Survival Period.
9.06 Amount Precedent to Any Indemnification Claim.
(a) The Buyer Indemnified Parties shall not be entitled
to receive payment of any claim for indemnification with respect to any matter
arising under Section 9.02 unless:
(i) the amount of the claim arising out of such matter is in
excess of Minimum Claim in any one instance; and
(ii) the aggregate amount of all claims being made by such Buyer
Indemnified Parties (together with all such claims previously made by
such parties) exceeds the Basket, in which event the indemnification
shall be all indemnifiable Losses beginning with the first dollar.
(iii) Notwithstanding the foregoing, any claims made with respect
to the payment of the Purchase Price shall not be subject to the
thresholds established by this Section 9.06.
(b) The Seller Indemnified Parties shall not be entitled to receive
payment for any claim for indemnification with respect to any matter
arising under Section 9.01 unless:
(i) the amount of the claim arising out of such matter is in
excess of the Minimum Claim in any one instance; and
(ii) the aggregate amount of all claims being made by such Seller
Indemnified Parties (together with all such claims previously made by
such parties) exceeds the Basket, in which event the indemnification
shall be all indemnifiable Losses beginning with the first dollar.
(iii) Notwithstanding the foregoing, any claims having their
bases in the following shall not be subject to the thresholds
established by this Section: (i) breach of the representations and
warranties contained in Sections 3.02(a)(ii), 3.03(a)(ii), 3.04 (but
only with respect to title), 3.11, 3.16, 3.19 and 3.22, (ii) claims
under Section 9.01(c), 9.01(d), 9.01(e), 9.01(f) , 9.01(g) and 9.01(h)
or (iii) fraud or intentional misrepresentation.
29
(c) In determining whether a Seller Indemnified Party is entitled to
recover for any Losses under Section 9.01(a), any materiality qualification
contained in any representation or warranty of the Company and/or Controlling
Shareholders shall not be taken into account in determining the magnitude of the
Losses occasioned by any breach thereof for purposes of determining what amounts
are applied to the Basket.
9.07 Cap on Indemnification Liability. The maximum indemnification
liability of any party hereto shall not exceed the Cap, provided however that
any claims for indemnification having their bases in the following shall not be
subject to the thresholds established by this Section 9.07: (i) breach of the
representations and warranties contained in Sections 3.02(a)(ii), 3.03(a)(ii),
3.04 (but only with respect to title), 3.11, 3.16, 3.19 and 3.22, (ii) claims
under Section 9.01(c), 9.01(d) and 9.01(e) or (iii) fraud or intentional
misrepresentation.
9.08 Payment. All indemnification hereunder shall be effected by payment of
cash or delivery of a certified or official bank check in the amount of the
indemnification liability or by set-off against any amounts otherwise owed by
the Buyer to Company, or by the Company or a Controlling Shareholder to the
Buyer, as the case may be.
ARTICLE X
TERMINATION
10.01 Termination of Agreement. Except as otherwise set forth in Section
10.02, this Agreement and the transactions contemplated hereby may be terminated
at any time prior to the Closing Date as follows:
(a) By mutual written consent of the Buyer and the Company;
(b) By Buyer, if there has been a material violation or breach by
Sellers of any of the agreements, representations or warranties contained
in this Agreement which has not been waived in writing;
(c) By the Company if there has been a material violation or breach by
Buyer or Holdings of any of the agreements, representations or warranties
contained in this Agreement which has not been waived in writing;
(d) By either the Company or Buyer if the Closing has not occurred on
or before August 15, 2003.
10.02 Effect of Termination. Notwithstanding any provision of this
Agreement to the contrary, neither the Company nor Buyer may terminate this
Agreement if the event that gives rise to such termination right results in
whole or in part from the willful failure of such party to perform or observe
any of the covenants or agreements set forth herein to be performed or observed
by such party or if such party is, at such time, in material breach of this
Agreement. The right of termination under Section 10.01 may be exercised by
Buyer or the Company, as the case may be, only by giving written notice, signed
on behalf of such party by its duly authorized officer, to the other parties
hereto. Except for the obligations set forth in Article IX and Sections 5.07,
5.08 and 11.02, all obligations, liabilities and responsibilities of the parties
hereunder will terminate and have no further force or effect except that (a)
upon request therefor, each party will return all documents, work papers and
other material of any other party relating to the transactions contemplated by
this Agreement, whether so obtained before or after the execution of this
Agreement, to the party furnishing the same, and all confidential information
received by any party to this Agreement with respect to the business of the
other party will be treated in accordance with the
30
Section 5.08 hereof; and (b) no exercise by either party of its right to
terminate this Agreement pursuant to Section 10.01 shall prejudice that party's
rights and remedies against the other parties for breach of such other party's
obligations under this Agreement or otherwise.
ARTICLE XI
MISCELLANEOUS PROVISIONS
11.01 No Brokerage. Each party hereto represents and warrants to the other
parties hereto that it has not incurred any obligation or liability, contingent
or otherwise, for brokerage or finders' fees or agents' commissions or other
like payment in connection with this Agreement or the transactions contemplated
hereby, and each party agrees to indemnify and hold the other party harmless
against and in respect of any such obligation or liability based in any way on
agreements, arrangements or understandings claimed to have been made by such
party with any third party.
11.02 Expenses. Whether or not the transactions contemplated by this
Agreement are consummated, each of the parties hereto shall pay its own fees and
expenses incident to the negotiation, preparation, execution and performance of
this Agreement including counsel and accountant's fees.
11.03 Misdirected Payments, Etc.. The Company and Buyer covenant and agree
to remit, with reasonable promptness, to the other any payments received, which
payments are on or in respect of accounts or notes receivable owned by (or are
otherwise payable to) the other.
11.04 Third Party Beneficiary. None of the provisions herein contained are
intended by the parties, nor shall they be deemed, to confer any benefit on any
person not a party to this Agreement.
11.05 Entire Agreement/Amendment. This Agreement, together with the
Schedules, Buyer Ancillary Documents, Company Ancillary Documents and
Shareholder Ancillary Documents, supersedes all prior contracts, understandings
and agreements, whether written or oral, and constitutes the entire agreement of
the parties respecting the within subject matter and no party shall be entitled
to benefits other than those specified herein. As between or among the parties,
no oral statements or prior written material not specifically included herein
shall be of any force and effect; the parties specifically acknowledge that in
entering into and executing this Agreement, the parties rely solely upon the
representations and agreements contained in this Agreement and no others. No
terms, conditions, warranties, or representations, other than those contained
herein and no amendments or modifications hereto, shall be binding unless made
in writing and signed by the party to be charged.
11.06 Severability. Should any one or more of the provisions of this
Agreement or any agreement entered into pursuant hereto be determined to be
illegal or unenforceable, all other provisions of this Agreement and such other
agreements shall be given effect separately from the provision or provisions
determined to be illegal or unenforceable and shall not be affected thereby.
11.07 Waiver. The waiver by any party of a breach or violation of any term
or provision of this Agreement shall not operate as, or be construed to be, a
waiver of any subsequent breach of the same provision by any party or of the
breach of any other term or provision of this Agreement. The delay or a failure
of a party to transmit any written notice hereunder shall not constitute a
waiver by such party of any default hereunder or of any other or further default
under this Agreement except as may expressly be provided for by the terms of
this Agreement.
11.08 Enforcement. Should any legal proceedings be commenced to secure or
enforce any right under this Agreement or any agreement entered into pursuant to
the terms hereof, the prevailing party shall be entitled to recover from the
non-prevailing party its reasonable attorneys' fees and costs, in
31
addition to all other relief to which said party may be entitled. The term
"prevailing party" shall mean that party whose position is substantially upheld
in a final judgment rendered in such litigation, or, if the final judgment is
appealed, that party whose position is substantially upheld by the decision of
the final appellate body.
11.09 Construction of Terms. The language used in the Agreement shall be
construed, in all cases, according to its fair meaning, and not for or against
any party hereto. The parties acknowledge that each party has reviewed this
Agreement and that normal rules of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of this Agreement. Whenever the masculine gender is used
herein, it shall be deemed to include the feminine and the neuter.
11.10 Governing Law and Disputes. This Agreement shall be construed and
enforced in accordance with the laws of the State of California without regard
to its principles of conflicts of laws. Any action or proceeding seeking to
enforce any provision of, or based on any right arising out of, this Agreement
may be brought against any of the Parties in the courts of the State of
California, County of Los Angeles, or, if it has or can acquire jurisdiction, in
the United States District Court for Central California, and each of the Parties
consents to the jurisdiction of such courts (and of the appropriate appellate
courts) in any such action or proceeding and waives any objection to venue laid
therein. Process in any action or proceeding referred to in the preceding
sentence may be served on any party anywhere in the world. 14.15 EACH PARTY
HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHTS IT MAY HAVE TO DEMAND THAT
ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN ANY WAY RELATED TO
THIS AGREEMENT OR THE RELATIONSHIPS OF THE PARTIES HERETO BE TRIED BY JURY. THIS
WAIVER EXTENDS TO ANY AND ALL RIGHTS TO DEMAND A TRIAL BY JURY ARISING FROM ANY
SOURCE INCLUDING, BUT NOT LIMITED TO, THE CONSTITUTION OF THE UNITED STATES OR
ANY STATE THEREIN, COMMON LAW OR ANY APPLICABLE STATUTE OR REGULATIONS. EACH
PARTY HERETO ACKNOWLEDGES THAT IT IS KNOWINGLY AND VOLUNTARILY WAIVING ITS RIGHT
TO DEMAND TRIAL BY JURY.
11.11 Notices. All notices, requests, demands and other communications
required or permitted hereunder shall be in writing and shall be deemed given on
the date personally delivered, sent by registered or certified mail, with
postage prepaid, or by any nationally recognized overnight courier service or by
facsimile to the respective parties as follows:
(a) If to Sellers, to: CardPayment
Solutions, Inc. 0000 Xxxxx
Xxxxxx, Xxxxx 000 Xxxxx
Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxx
Facsimile: (000) 000-0000
with a copy to: Van Etten Suzumoto and Becket LLP
0000 00xx Xxxxxx, Xxxxx 0000 Xxxxx
Xxxxx Xxxxxx, Xxxxxxxxxx 00000
Attention: Xxxx Xxxxxx
Facsimile: (000) 000-0000
(b) If to Buyer or Holdings, to: iPayment, Inc.
00 Xxxxxx Xxxxx, Xxxxx 000
00
Xxxxxxxxx, Xxxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxxx
Facsimile: (000) 000-0000
with a copy to: Xxxxxx Xxxxxxx Xxxxxx & Xxxxx, PLLC
000 Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxxx, Xxxxxxxxx 00000-0000
Attention: Xxxxxx X. Xxxxxxx
Facsimile: (000) 000-0000
or to such other person or address as either party shall furnish the other party
in writing.
11.12 Assignment. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors, but neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by Sellers without the prior written
consent of the Buyer.
11.13 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11.14 Consented Assignment. Anything contained herein to the contrary
notwithstanding, this Agreement shall not constitute an agreement to assign any
claim, right, contract, license, lease, commitment, sales order or purchase
order if an attempted assignment thereof without the consent of another party
thereto would constitute a breach thereof or in any material way affect the
rights of the Company thereunder, unless such consent is obtained. If such
consent is not obtained, or if an attempted assignment would be ineffective or
would materially affect the Company's rights thereunder so that Buyer would not
in fact receive all such rights, the Company shall cooperate in any reasonable
arrangement designed to provide Buyer the benefit under any such claims, rights,
contracts, licenses, leases, commitments, sales orders or purchase orders,
including without limitation, enforcement, at no out-of-pocket cost to Buyer, of
any and all rights of the Company against the other party or parties thereto
arising out of the breach or cancellation by such other party or otherwise.
11.15 Survival. All statements made by the parties hereto herein or in the
Schedules or in any other financial statement, document, instrument,
certificate, Exhibit or list delivered to each other hereunder by or on behalf
of parties hereto shall be deemed representations and warranties of the parties
hereto regardless of any investigation made by or on behalf of Buyer or
Holdings. Furthermore, the representations, warranties, covenants and agreements
made by the parties herein shall survive the Closing but shall expire
twenty-four (24) months after the Closing Date, except with respect to the
representations, warranties and covenants set forth in Sections 3.02(a)(ii),
3.03(a)(ii), 3.04 (but only with respect to title), 3.11, 3.16, 3.19 and 3.22,
which shall survive for the applicable statute of limitations periods
(collectively, the "Survival Period"). Notwithstanding the foregoing, this
Section 11.15 shall not provide third parties any benefit or longer period of
time in which to assert a claim beyond that which is provided by the relevant
statute of limitations.
11.16 Headings. The headings contained in this Agreement are inserted for
convenience only and shall not constitute a part hereof.
11.17 Setoff. Holdings and Buyer shall have the right to set off on
recovery any payment or recovery due to it from the Company, the CPS
Shareholders or the Controlling Shareholders against any amount otherwise due or
payable, including without limitation the Shares of Holdings Stock held pursuant
to the Escrow Agreement, those Contingent Payments due under Section 1.05(d),
and any other
33
payments arising from or under this Agreement, any Ancillary Documents and the
Employment Agreements, by Holdings or Buyer to the Company, the CPS Shareholders
or any Controlling Shareholder for any reason.
11.18 IRS Reimbursement. Buyer or Holdings shall reimburse the Company for
up to $36,000 of penalties, interest or fines in relation to the specific
liability of the Company referenced in Section 1.04(l).
ARTICLE XII
DEFINITIONS
For the purposes of this Agreement, the following terms shall have the
meanings set forth in this Article XII:
"1933 Act" shall mean the Securities Act of 1933, as amended.
"Agreement" shall have the meaning set forth in the introduction.
"Assets" shall have the meaning set forth in Section 1.01.
"Assignment and Assumption Agreement" shall have the meaning set forth in
Section 2.02(b).
"Assumed Chargeback Liability" shall mean those Chargebacks related to
Pre-Closing Transactions that only: (i) are processed, presented for payment or
otherwise identified or for which Buyer receives notice within 6 months after
the Effective Time in an amount not to exceed, in the aggregate, $60,000 with
respect to non-equipment leasing/rental activities and, in the aggregate,
$10,000 with respect to equipment leasing/rental activities; or (ii) are
processed, presented for payment or otherwise identified or for which Buyer
receives notice beyond 6 months after the Effective Time.
"Assumed Contracts" shall mean, collectively, the Assumed Leases,
Processing Agreement[s], Sponsorship Agreement[s], License Agreements,
Independent Agent Agreements and those listed on Schedule 1.01(k).
"Assumed Leases" shall mean, collectively, the Operating Leases and Capital
Leases.
"Assumed Liabilities" shall have the meaning set forth in Section 1.03.
"Basket" shall mean Fifteen Thousand and No/100 Dollars ($15,000).
"Xxxx of Sale" shall have the meaning set forth in Section 2.02(a).
"Business" shall have the meaning set forth in the introduction.
"Buyer" shall have the meaning set forth in the introduction.
"Buyer Ancillary Documents" shall mean the agreements and instruments
(other than this Agreement) to be executed and delivered by Buyer pursuant to
this Agreement.
"Buyer Benefit Plans" shall mean the employee benefit plans of Buyer or
Holdings.
"Buyer Health Plan" shall mean the health insurance plan of Buyer or
Holdings.
34
"Buyer Indemnified Parties" shall have the meaning set forth in Section
9.02.
"Buyer Plans" shall mean, collectively, the Buyer Health Plan and Buyer
Benefit Plans.
"Cap" shall mean, with respect to the Sellers liability, $5,000,000, and
with respect to Buyers and Holdings liability, $2,000,000.
"Capital Leases" shall have the meaning set forth in Section 1.01(e).
"Cash" shall have the meaning set forth in Section 1.05(b).
"Chargeback" means a charge on a credit card or debit card that is returned
or unpaid by the financial or other institution that issued such card and a
charge as otherwise defined in the rules, regulations or bylaws of the
applicable Credit Card Company. For purposes of this definition, Chargeback
shall also include those card association fines, penalties, fees and Losses
related to or arising from merchant transactions of the Business, as well as
Losses related to or arising from equipment leasing/rental activities related to
the Business.
"Closing" shall have the meaning set forth in Section 2.01.
"Closing Date" shall have the meaning set forth in Section 2.01.
"COBRA" shall mean Title I, Part 6 of ERISA.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder.
"Company" shall have the meaning set forth in the introduction.
"Company Debt" shall be those items noted on Schedule 1.03(d).
"Company Ancillary Documents" shall mean the agreements and instruments
(other than this Agreement) to be executed and delivered by the Company pursuant
to this Agreement.
"Contracts" shall have the meaning set forth in Section 1.01(k).
"Controlling Shareholder" shall have the meaning set forth in the
introduction.
"Courts" shall have the meaning set forth in Section 11.10.
"Credit Card Company" shall mean Visa, MasterCard, American Express,
Discover or other credit or debit card company.
"Deposits" shall have the meaning set forth in Section 1.01(l).
"DOL" shall mean the United States Department of Labor.
"Effective Time" shall mean 12:01 a.m. on August 1, 2003.
"Employment Agreements" shall mean those agreements referenced in Section
2.02(h).
"Employee Benefit Plan" shall have the meaning set forth in Section 3.16.
35
"ERISA" shall mean the Employee Retirement Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
"ERISA Affiliate" shall have the meaning set forth in Section 3.16(j).
"Excluded Assets" shall have the meaning set forth in Section 1.02.
"Financial Statements" shall have the meaning set forth in Section 3.07.
"GAAP" shall mean generally accepted accounting principles adopted in the
United States.
"Holdings" shall have the meaning set forth in the introduction.
"Holdings Ancillary Documents" shall mean the agreements and instruments
(other than this Agreement) to be executed and delivered by Holdings pursuant to
this Agreement.
"Inactive Employees" shall mean employees of the Company who are not
actively working as of the Closing, whether as a result of a pre-approved leave
of absence or otherwise.
"Indemnified Party" shall have the meaning set forth in Section 9.01.
"Independent Agent Agreement" shall have the meaning set forth in Section
10.0(t).
"Information Systems Transition Agreement" shall have the meaning set forth
in Section 2.02(f).
"IRS" shall mean the Internal Revenue Service.
"Key Employees" shall mean Xxx Xxxxxxx, Xxxxxxxx Xxxx, Xx Xxxxx and Xxx
Xxxxx.
"Knowledge" For the purpose of this Agreement, references to the "knowledge
of the Company" shall mean only the actual knowledge of the Controlling
Shareholders of the Company, its officers, Key Employees and members of its
board of directors; references to "knowledge of Controlling Shareholders" shall
mean only the actual knowledge of Xxxxxxx X. Xxxxx and Xxxxxxx X. Xxxxx, without
investigation; and reference to "knowledge of Sellers" shall mean only the
actual knowledge of any of the Company, as defined above, and the Controlling
Shareholders, as defined above, and shall not be construed by imputation or
otherwise, to refer to the knowledge of any other shareholder, agent, employee,
representative, any manger, sales representative, independent or otherwise, or
affiliate of the Seller or to impose upon any of the Controlling Shareholders,
directors, agents, employees, representatives of Seller any duty to investigate
the matter to which actual knowledge, or the absence thereof pertains.
"License Agreements" shall have the meaning set forth in Section 1.01(j).
"Losses" shall mean claims, losses, damages, liabilities and expenses
including without limitation settlement costs and any legal or other expenses
for investigating or defending any action or threatened action.
"MasterCard" shall mean MasterCard International, Inc.
"Merchant Accounts" shall have the meaning set forth in Section 3.10.
"Merchant Agreements" shall have the meaning set forth in Section 1.01(i).
36
"Merchant Reserve Account" shall have the meaning set forth in Section
8.03.
"Merchants" shall mean any customer for whom the Company, directly or
indirectly, provides processing or other credit or debit card related services,
including without limitation the Merchants set forth on Schedule 1.01(o) hereto.
"Minimum Claim" shall mean Five Hundred and No/100 Dollars ($500).
"Non-Offerees" shall have the meaning set forth in Section 8.01(d).
"Offer Request" shall have the meaning set forth in Section 8.01(c).
"Offerees" shall have the meaning set forth Section 8.01(a).
"Operating Leases" shall have the meaning set forth in Section 1.01(f).
"Owned Intellectual Property" shall have the meaning set forth in Section
1.01(c).
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"Pre-Closing Transactions" shall mean Merchant account transactions
processed before the Effective Time.
"Proceeding" shall mean any demand, claim, action or proceeding made or
brought by a third party, including without limitation a government agency.
"Processing Agreement(s)" shall mean those agreements on Schedule 1.01(g) .
"Processor" shall mean those companies with whom the Company has entered
into Processing Agreements listed on Schedule 1.01(h).
"Purchase Price" shall have the meaning set forth in Section 1.05.
"Real Property" shall mean any parcel of real property, together with the
improvements thereon, owned or leased by the Company.
"Receivables" shall have the meaning set forth in Section 1.01(a).
"Reserves" shall have the meaning set forth in Section 1.08.
"Retained Chargeback Liability" shall mean those Chargebacks related to
Pre-Closing Transactions which are presented, identified, processed or for which
Buyer receives notice within 6 months after the Effective Time in an amount
exceeding, in the aggregate, $60,000 with respect to non-leasing/rental
activities, and, in the aggregate, $10,000 with respect to equipment
leasing/rental activities.
"Seller Indemnified Parties" shall have the meaning set forth in Section
9.01.
"Seller Indemnifying Parties" shall have the meaning set forth in Section
9.01.
"Sellers" shall have the meaning set forth in the introduction.
"Settlement Report" shall mean the Company's Visa/MasterCard Settlement
Report.
37
"Shareholder" shall have the meaning set forth in the introduction.
"Shareholder Ancillary Documents" shall mean the agreements and instruments
(other then this Agreement) to be executed and delivered by a Controlling
Shareholder pursuant to this Agreement.
"Sponsor" shall have the meaning set forth in Section 3.16(g).
"Sponsor Bank(s)" shall mean the bank(s) with whom the Company has entered
into a Sponsorship Agreement listed on Schedule 1.01(h).
"Sponsorship Agreement(s)" shall mean those certain agreements on Schedule
1.01(h).
"Stock" shall have the meaning set forth in Section 1.05(d).
"Survival Period" shall have the meaning set forth in Section 11.15.
"Tax" or "Taxes" shall mean all taxes, however denominated, including any
interest, penalties or other additions to taxes that may become payable in
respect thereof, imposed by any federal, territorial, state, local or foreign
government or any agency or political subdivision of any such government, which
taxes shall include, without limiting the generality of the foregoing, all
income or profits taxes (including, but not limited to, federal income taxes and
state income taxes), payroll and employee withholding taxes, unemployment
insurance, social security taxes, sales and use taxes, ad valorem taxes, excise
taxes, franchise taxes, gross receipts taxes, business license taxes, occupation
taxes, personal property taxes, stamp taxes, environmental taxes, transfer
taxes, workers' compensation, levies or assessments for unclaimed property under
applicable escheat or unclaimed property laws, taxes under the applicable bulk
sale statutes and other obligations of the same or of a similar nature to any of
the foregoing.
"Tax Return" shall mean any report, return , declaration, claim for refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Visa" shall mean, collectively, Visa International, Inc. and Visa USA,
Inc.
[signature page follows]
38
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
iPAYMENT, INC.
By:
---------------------------------------------
Title:
------------------------------------------
CPS ACQUISITION, L.L.C.
By: iPayment, Inc., its
---------------------
By:
-------------------------------------
Name:
------------------------------------
Title:
----------------------------------
CARDPAYMENT SOLUTIONS, INC.
By:
--------------------------------------------
Title:
-----------------------------------------
------------------------------------------------
Xxxxxxx X. Xxxxx, Controlling Shareholder
------------------------------------------------
Xxxxxxx X. Xxxxx, Controlling Shareholder
39
TABLE OF SCHEDULES*
1.01(a) Company's Receivables
1.01(b) Company's Inventory
1.01(c) Owned Intellectual Property
1.01(d) Tangible Personal Property
1.01(e) Capitalized Leases
1.01(f) Operating Leases
1.01(g) Processing Agreement
1.01(h) Sponsorship Agreement
1.01(j) License Agreements
1.01(k) Company's Contracts and Assumed Contracts
1.01(m) Company's Prepaid Fees and Deposits
1.01(o) Company's Merchants
1.02(b) Amounts due to Company from Shareholders or other Affiliates
1.02(e) Assets of Sellers
1.03(d) Liabilities and Obligations of the Company
1.05(d) Contingent Payments
1.07 Allocation of Purchase Price
3.01 Company's Certificate of Good Standing
3.02 Company's Corporate Powers; Absence of Conflicts With Other
Agreements, etc.
3.03 Shareholder's Capacity; Absence of Conflicts With Other
Agreements, etc.
3.04 Qualifications to Title to Assets
3.05 Company Shareholders
3.06 Company Subsidiaries
3.07 Financial Statements
3.07(e) Qualifications to Preparation of Company's Financial Statements
3.08 Undisclosed Liabilities
3.09 Post-Balance Sheet Results
3.10(a) Settlement Report
3.10(b) Potential Merchant Cancellations
3.10(c) Company's Merchant Information
3.11(a) Outstanding Tax Matters
3.12(a) Nondisclosed Company Contracts
3.12(b) Company's Assumed Contracts Not in Full Force and Effect
3.14(a) Employees and Independent Sales Representatives
3.14(b)(i) Company's Employment Agreements
3.14(b)(ii) Terminated Employees
3.14(c) Independent Agents Intending to Terminate with Company
3.16 Employee Benefit Plans
3.16(l) Company's Obligation to its Employees
3.16(m) Former Employees who have elected COBRA Coverage
3.17 Litigation
3.18 Compliance Issues
3.19 Environmental Matters
3.20 Certain Payments
3.21 Conflict of Interest
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* See footnote on page 42 for an explanation of schedules not included with
the version of this Agreement filed with the Securities and Exchange
Commission
40
3.22(c) Non-Accredited Investors
3.24 Myisocenter, L.L.C. Members and Employees
3.25 Company's Knowledge of Fraud by Merchants
3.27(a) Chargebacks
3.30 Ownership and Portability of Merchant Accounts
3.31 Retention Payments
3.33 Independent Agents Contracting with Company on Non-Standard Terms
4.01 Corporate Organization, etc.
4.02 Buyer's Corporate Powers; Absence of Conflicts With Other
Agreements
4.03 Holdings' Corporate Powers; Absence of Conflicts With Other
Agreements, etc.
4.04 Subscription, Warrant, Option, Convertible Security or Other
Right to Purchase or Acquire any Shares of the Capital Stock of
Holdings
4.06 Litigation
5.05 Consents to Assignment of all Assumed Contracts to Buyer
5.06 Termination or Merger of Employee Benefit Plans
6.04 Employee Agreements
8.01 Excluded Employees
41
TABLE OF EXHIBITS**
Exhibit 1.01(i) Merchant Agreements
Exhibit 2.02(a) Xxxx of Sale
Exhibit 2.02(b) Assignment and Assumption Agreement
Exhibit 2.02(c) Consent to the Assignment of the Processing
Agreement
Exhibit 2.02(d) Consent to the Assignment of the Sponsorship
Agreement
Exhibit 2.02(f) Information Systems Transition Agreement
Exhibit 2.02(g) Company Non-Compete Agreement
Exhibit 2.02(h) Shareholder Non-compete Agreement
Exhibits 2.02(h)(i); 2.02 (h)(ii) Employment Agreements
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** Pursuant to Item 601(b)(2) of Regulation S-K, the Company has not filed the
Schedules (other than Schedule 1.05(d)), nor Exhibits 1.01(i) (Merchant
Agreements), 2.02(a) (Xxxx of Sale), 2.02(b) (Assignment and Assumption
Agreement), 2.02(c) (Consent to the Assignment of the Processing
Agreement), 2.02(d) (Consent to the Assignment of the Sponsorship
Agreement), 2.02(f) Information Systems Transition Agreement, 2.02(g)
(Company Non-compete Agreement), 2.02(h) (Shareholder Non-compete
Agreement) and Exhibits 2.02(h)(i) and (ii) (Employment Agreements). The
Company agrees to furnish supplementally to the Securities and Exchange
Commission any such omitted item and reserves the right to request
confidential treatment for any information contained therein.
SCHEDULE 1.05(d)
CONTINGENT PAYMENTS
In addition to all other sums due Company under the Agreement, Company shall be
entitled to receive from Buyer contingent compensation determined as follows:
1. A total of Two Million Dollars ($2,000,000) if Buyer generates a total
of Five Thousand Forty (5,040) New Active Merchants (as defined below) during
the Period (as defined below)
2. An additional Five Hundred Thousand Dollars ($500,000) (for a total of
$2,500,000) if Buyer generates a total of Seven Thousand Two Hundred (7,200) New
Active Merchants (as defined below) during the Period (as defined below)
3. An additional Five Hundred Thousand Dollars ($500,000) (for a total of
$3,000,000) if Buyer generates a total of Nine Thousand Six Hundred (9,600) New
Active Merchants (as defined below) during the Period (as defined below)
For purposes of this Schedule 1.5(d) "New Active Merchant" shall mean a new
merchant application that is Approved by iPayment, was not at the time that the
application was being processed or immediately prior thereto a merchant of the
Company (or iPayment or any of iPayment's subsidiaries), and which has at least
one month of Visa/Mastercard processing transactions. For purposes of this
Schedule 1.5(d), "Approved" shall mean that such merchant has a risk profile &
pricing acceptable to iPayment. For purposes of this Schedule 1.5(d), "Period"
shall mean the date which begins as of August 1, 2003 and ends as of July 31,
2004. The aggregate maximum payment that may be earned as a contingent payment
under this Schedule 1.5(d) is $3,000,000. Any Contingent Payment earned by
Company under this Schedule 1.5(d) shall be all due and payable within a
reasonable time after confirmation of the aggregate number of the New Active
Merchants that have been added during the Period, but in no event shall said
amount be paid prior to August 1, 2004 or later than September 30, 2004.
