EXHIBIT 10.14
AGREEMENT OF PURCHASE AND SALE OF ASSETS
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This Agreement of Purchase and Sale of Assets (this "Agreement") is entered
into and effective as of August 29, 1997, by and AMONG LITIGATION RESOURCES OF
AMERICA-CALIFORNIA, INC., a California corporation (the "Buyer"), LITIGATION
RESOURCES OF AMERICA, INC., a Texas corporation (the "Parent"), and LEGAL
ENTERPRISE, INC., a California corporation (the "Seller"), joined by XXXX X.
XXXXXXXX, an individual resident of California and a director, officer and
shareholder of the Seller ("Xxxxxxxx") and XXXX XXXXX, an individual resident of
California and a director, officer and shareholder of the Seller ("Simon").
Buyer, Parent, Seller, Xxxxxxxx and Xxxxx are hereinafter sometimes referred to
collectively as the "Parties" or singularly as a "Party."
W I T N E S S E T H :
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WHEREAS, the Seller is the owner of various assets associated with the
Business (as hereinafter defined);
WHEREAS, the Buyer desires to purchase all or substantially all of the
Assets (as hereinafter defined) owned by the Seller and used in the Business,
and the Seller desires to sell such Assets to the Buyer;
WHEREAS, in connection with the purchase and sale of the Assets, the Parties
desire to set forth in this Agreement the terms and conditions with respect to
the transfer of such Assets;
NOW, THEREFORE, for and in consideration of the mutual covenants,
agreements, representations and warranties contained in this Agreement, and
other good and valuable consideration, the receipt, adequacy and sufficiency of
which are hereby acknowledged, the Parties hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
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As used herein, the following terms shall have the following meanings:
ACCOUNTS PAYABLE REPORT. The term "Accounts Payable Report" shall mean a
report prepared as of the time specified which shows accounts payable of the
Business by service provider and age of each account payable.
ACCOUNTS RECEIVABLE. The term "Accounts Receivable" shall mean all
accounts receivable of Seller generated in connection with the operations of the
Business prior to the Effective Date and reflected on the Financial Statements
as of the Effective Date in a manner consistent with Seller's past practices and
the manner in which such information has been provided to Buyer.
ACCOUNTS RECEIVABLE REPORT. The term "Accounts Receivable Report" shall
mean a report prepared as of the time specified which shows accounts receivable
of the Business by customer and age of each of the Accounts Receivable.
ADDITIONAL PARENT SHARES VALUE. The term "Additional Parent Shares Value"
means $8.50 per Parent Share; provided, that if the Parent or its Affiliates
have subsequently consummated an acquisition in which Parent Shares are issued,
then "Additional Parent Shares Value" means the value of each Parent Share as
specified in the most recent such acquisition; and further provided however,
that if the Parent has successfully consummated a public offering of its shares
of common stock; then "Additional Parent Shares Value" means the average public
trading price of each Parent Share over the five (5) most recent business days.
AFFILIATE. The term "Affiliate" of a person shall mean, with respect to
that person, a person who directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
or is acting as agent on behalf of, or as an officer or director of that person.
As used in the definition of Affiliate, the term "control" (including the terms
"controlling," "controlled by," or "under common control with") means the
possession, direct or indirect, of management and policies of a person whether
through the ownership of voting securities, by contract, through the holding of
a position as a director or officer of such person, or otherwise. As used in
this definition, the term "person" means an individual, a corporation, a
partnership, an association, a joint stock company, a trust, an incorporated
organization, or a government or political subdivision thereof.
ANCILLARY AGREEMENTS. The term "Ancillary Agreements" shall have the
meaning set forth in Section 3.11.
ASSETS. The term "Assets" shall have the meaning set forth in Section 2.1.
ASSUMED LIABILITIES. The term "Assumed Liabilities" shall have the meaning
as contained in Section 2.6.
BALANCE SHEET REPORT. The term "Balance Sheet Report" means the balance
sheet of the Seller as of a given date showing the assets, liabilities and
equity of the Seller, prepared by the Seller in accordance with GAAP on a
consistent basis as with prior time periods and further adjusted to exclude
Excluded Assets and Retained Liabilities.
XXXX OF SALE. The term "Xxxx of Sale" shall have the meaning set forth in
Section 6.2(g).
BOOKS AND RECORDS. The term "Books and Records" shall have the meaning set
forth in Section 2.1(c).
BUSINESS. The term "Business" shall mean the record retrieval and
litigation support business of the Seller as presently conducted.
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BUYER INDEMNIFIED PARTIES. The term "Buyer Indemnified Parties" shall have
the meaning set forth in Section 7.1A.
BUYER OBLIGATIONS. The term "Buyer Obligations" shall have the meaning set
forth in Section 8.2.
CLOSING. The term "Closing" shall mean the consummation of the events and
transactions to take place on the Closing Date.
CLOSING DATE. The term "Closing Date" shall mean August 29, 1997.
CLOSING DATE ACCOUNTS PAYABLE REPORT. The term "Closing Date Accounts
Payable Report" shall mean an Accounts Payable Report prepared as of the
Closing Date.
CLOSING DATE ACCOUNTS RECEIVABLE REPORT. The term "Closing Date Accounts
Receivable Report" shall mean an Accounts Receivable Report prepared as of the
Closing Date.
CLOSING DATE BALANCE SHEET REPORT. The term "Closing Date Balance Sheet
Report" shall mean a Balance Sheet Report prepared as of the Closing Date.
CLOSING DATE INCOME STATEMENT. The term "Closing Date Income Statement"
shall mean an income statement of the Seller, prepared as of the Closing Date.
CLOSING DATE REPORTS. The term "Closing Date Reports" shall have the
meaning set forth in Section 2.4.
CONTRACTS. The term "Contract" shall have the meaning as contained in
Section 2.1(b).
CUSTOMERS. The term "Customers" shall have the meaning as contained in
Section 3.22.
DAMAGES. The term "Damages" shall have the meaning set forth in Section
7.1A.
EFFECTIVE DATE. The term "Effective Date" shall mean 12:01 a.m. on the
"Closing Date."
EMPLOYEE. The term "Employee" shall mean any employee of the Seller who, as
of the Effective Date, is employed or otherwise performs work or provides
services in connection with the operation of the Business, including those, if
any, on disability, sick leave, layoff or leave of absence, who, in accordance
with the Seller's applicable policies, are eligible to return to active status,
but shall not include any independent contractor providing record retrieval and
litigation support services to Seller from time to time.
EMPLOYMENT AGREEMENT. The term "Employment Agreement" shall have the
meaning as contained in Section 6.2(f).
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ERISA. The term "ERISA" shall have the meaning as contained in Section
3.15.
EQUIPMENT. The term "Equipment" shall have the meaning as contained in
Section 2.1(a).
EXCLUDED ASSETS. The term "Excluded Assets" shall have the meaning as
contained in Section 2.2.
FINAL NET WORTH. The term "Final Net Worth" means total assets minus total
liabilities, as reflected on the Closing Date Balance Sheet Report.
GAAP. The term "GAAP" shall mean generally accepted accounting principles
of the Accounting Principles Board of the American Institute of Certified Public
Accountants and the Financial Accounting Standards Board that are applicable
from time to time.
GENERAL INTANGIBLES. The term "General Intangibles" shall have the meaning
contained in Section 2.1(g).
GUARANTEED NET WORTH. The term "Guaranteed Net Worth" shall mean the amount
of Six Hundred Fifty-Four Thousand Two Hundred Eighty-Eight Dollars ($654,288).
INITIAL CASH PURCHASE PRICE. The term "Initial Cash Purchase Price" shall
have the meaning set forth in Section 2.3.
INITIAL PURCHASE PRICE. The term "Initial Purchase Price" shall mean the
consideration payable to the Seller for the Assets as set forth or contemplated
in Section 2.3.
INTELLECTUAL PROPERTY. The term "Intellectual Property" shall have the
meaning as contained in Section 2.1(e).
LEI DIVISION. The term "LEI Division" shall mean the separate operating
division of Buyer established to continue the operations of Seller acquired
under the terms of this Agreement.
LEI DIVISION EBITDA. The term "LEI Division EBITDA" shall mean adjusted
earnings of the LEI Division before interest, taxes, depreciation and
amortization BUT minus 50% of the initial base salary to be paid to Xxxxxxxx
pursuant to the Employment Agreement.
NATIONAL RECORD RETRIEVAL EBITDA. The term "National Record Retrieval
EBITDA" means adjusted earnings of the record retrieval business of Parent and
its subsidiaries before interest, taxes, depreciation and amortization,
excluding that of the LEI Division and any record retrieval business conducted
in Texas.
NET WORTH. The term "Net Worth" means the dollar amount of total assets
minus the total liabilities of the Seller as of a given time period as
determined by the Balance Sheet Reports as of such time period.
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NOTE 1. The term "Note 1" shall have the meaning set forth in Section
2.3(a).
NOTE 2. The term "Note 2" shall have the meaning set forth in Section
2.3(a).
NOTICE OF ACTION. The term "Notice of Action" shall have the meaning set
forth in Section 7.1C.
NOTICE OF ELECTION. The term "Notice of Election" shall have the meaning
set forth in Section 7.1C.
OFFSET. The term "Offset" shall have the meaning set forth in Section 8.2.
OFFSET CLAIM. The term "Offset Claim" shall have the meaning set forth in
Section 8.2.
OWNER. The term "Owner" shall mean Seller, the owner of the Business.
PARENT SHARES. The term "Parent Shares" shall mean any of the shares of
common stock of the Parent.
PECKS. The term "Pecks" shall mean Pecks Management Partners Ltd., a New
York limited partnership.
PUBLIC OFFERING. The term "Public Offering" means the sale by the Parent of
any of its securities for cash in an underwritten public offering registered on
the appropriate form with the Securities and Exchange Commission.
PUBLIC OFFERING PRICE. The term "Public Offering Price" shall refer to the
initial share price of the common stock of Parent Shares at the time and on the
date of the initial Public Offering of the Parent Shares by Parent.
REGISTRATION RIGHTS AGREEMENT. The term "Registration Rights Agreement"
shall have the meaning as contained in Section 6.2(l).
RETAINED LIABILITIES. The term "Retained Liabilities" shall have the
meaning contained in Section 7.1B.
SECONDARY CASH PURCHASE PRICE. The term "Secondary Cash Purchase Price"
shall have the meaning set forth in Section 2.3.
SECONDARY PURCHASE PRICE. The term "Secondary Purchase Price" shall have
the meaning set forth in Section 2.3.
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SECONDARY PURCHASE PRICE CALCULATION DATE. The term "Secondary Purchase
Price Calculation Date" shall have the meaning set forth in Section 2.3.
SELLER INDEMNIFIED PARTIES. The term "Seller Indemnified Parties" shall
have the meaning set forth in Section 7.1B.
SELLER INDEMNITORS. The term "Seller Indemnitors" shall have the meaning
set forth in Section 7.1A.
SELLER'S FINANCIAL STATEMENTS. The term "Seller's Financial Statements"
shall mean the internally compiled financial statements of the Seller as more
fully defined in Section 3.15 herein.
SELLER'S NAMES. The term "Seller's Names" shall have the meaning set forth
in Section 2.1(j).
SHAREHOLDERS' AGREEMENT. The term "Shareholders' Agreement" shall have the
meaning set forth in Section 6.8.
STOCK PLEDGE AGREEMENT. The term "Stock Pledge Agreement" shall have the
meaning as contained in Section 6.2(n).
SUBORDINATION AGREEMENTS. The term "Subordination Agreements" shall mean
those certain Subordination Agreements of even date herewith entered into among
Seller and any of the Company, the Parent, Affiliates, and holders of Senior
Indebtedness (as such item is defined in Note 1 or Note 2).
TOTAL VALUE OF SECONDARY SHARES. The term "Total Value of Secondary Shares"
shall have the meaning set forth in Section 2.3.
TRADE PAYABLES. The term "Trade Payables" shall mean all of the accounts
payable of the Business incurred in the ordinary course of business existing as
of the Effective Date, as set forth on the Closing Date Balance Sheet Report.
ARTICLE II
PURCHASE OF ASSETS AND PURCHASE PRICE
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2.1 SALE OF ASSETS. Subject to the terms and conditions set forth in this
Agreement, the Seller agrees to sell, convey, transfer, assign and deliver to
the Buyer, and the Buyer agrees to purchase from the Seller on the Effective
Date, all assets owned by Seller and used in or derived from the Business (other
than those specifically excluded under Section 2.2 below) including the
following (such assets to be referred to herein as the "Assets"):
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(a) All office equipment, service equipment, supplies, computer
hardware, computer software, data processing equipment, motor vehicles, and
tools (the "Equipment"), including the Equipment described on Schedule
2.1(a);
(b) All contracts, leases, documents, franchises, licenses,
instruments, agreements and other written or oral agreements relating to the
Business of Seller to which Seller is a party or by which Seller or any of
the Assets may be bound as well as all rights, privileges, claims and
options relating to the foregoing (the "Contracts"), including the Contracts
described on Schedule 2.1(b);
(c) All customer and supplier files and databases, customer and
supplier lists, accounting and financial records, invoices, and other books
and records relating principally to the Business (the "Books and Records"),
including the Books and Records described on Schedule 2.1(c);
(d) Employee files for those employees actually hired by Buyer;
(e) All right, title and interest of Seller, in, to and under all
service marks, trademarks, trade and assumed names, principally related to
the Business together with the right to recover for infringement thereon, if
any (the "Intellectual Property"), and other marks and/or names described
on Schedule 2.1(e);
(f) All advertising materials and all other printed or written
materials related to the conduct of the Business;
(g) All of the Seller's general intangibles, claims, rights of set
off, rights of recoupment, goodwill, patents, inventions, trade secrets and
royalty rights and other proprietary intangibles, licenses and sublicenses
granted and obtained with respect thereto, and rights thereunder, which are
used in the Business, and remedies against infringements thereof, and rights
to protection of interests therein under the laws of all jurisdictions (the
"General Intangibles"), including the General Intangibles described on
Schedule 2.1(g);
(h) All goodwill and going concern value and all other intangible
properties related to the Business;
(i) All of Seller's receivables, including Accounts Receivable, notes
receivable, trade receivables, and intercompany receivables relating to the
Business; and
(j) The exclusive right to use the name "Legal Enterprise, Inc.", any
similar name or derivative thereof, and any past or present assumed names
or trade names in connection with Buyer's use of the Purchased Assets (the
"Seller's Names").
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2.2 EXCLUDED ASSETS. Seller is not selling and Buyer is not purchasing any
of the following excluded assets related to the Business ("Excluded Assets"):
(i) cash, and (ii) cash investments, cash deposits, including any and all
leasehold deposits, right to receive cash refunds, and other cash equivalents,
all as more specifically described on Schedule 2.2.
2.3 PURCHASE PRICE. Upon the terms and subject to the conditions contained
herein and as consideration for the sale of the Assets and the performance by
the Seller of various other matters as provided herein, the Buyer shall pay the
Seller the aggregate amount of the following :
(a) At the Closing, the aggregate amount of the following (the
"Initial Purchase Price"):
(i) Subject to the provisions of Section 2.4, a cash sum in the
amount of One Million Two Hundred Thousand and No/100 Dollars
($1,200,000.00) (the "Initial Cash Purchase Price"), paid by the wire
transfer of immediately available funds; and
(ii) Subject to the provisions of Section 2.4, a subordinated
promissory note in substantially the form of EXHIBIT A-1 in the amount
of Three Hundred Nineteen Thousand Three Hundred Forty and No/100
Dollars ($319,340.00) which shall be subordinated as provided therein
( "Note 1"); Note 1 shall bear interest at an annual rate of Six and
Three-Eighths Percent (6.375%), and shall provide for equal monthly
payments of accrued interest and a final payment of principal and all
accrued and unpaid interest on the eighth anniversary of the Closing
Date, subject to certain limitations imposed by the Subordination
Agreements; and
(iii) Subject to the provisions of Section 2.4, a convertible
subordinated promissory note in substantially the form of EXHIBIT A-2
in the amount of Eight Hundred Twenty-One Thousand One Hundred Sixty
and No/100 Dollars ($821,160.00) which shall be subordinated and
convertible into shares of common stock of Parent as provided therein
( "Note 2"); Note 2 shall bear interest at an annual rate of Six and
Three-Eighths Percent (6.375%), and shall provide for equal monthly
payments of accrued interest and a final payment of principal and all
accrued and unpaid interest on the eighth anniversary of the Closing
Date, subject to certain limitations imposed by the Subordination
Agreements.
(b) In addition to the Initial Purchase Price, the Buyer shall pay the
Seller within forty-five (45) days following the end of the 30th month
following the Closing Date (the "Secondary Purchase Price Calculation
Date"), such amount, if any, by which the aggregate amount of six times the
LEI Division EBITDA for the twelve-month period ending on the Secondary
Purchase Price Calculation Date exceeds the Initial Purchase Price, as
adjusted by Section 2.5, payable as follows (the "Secondary Purchase
Price"):
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(i) a cash sum in the amount of (A) Sixty-Five Percent (65%) of
the Secondary Purchase Price if the Public Offering has occurred, or
(B) Fifty Percent (50%) of the Secondary Purchase Price if the Public
Offering has not occurred (the "Secondary Cash Purchase Price"), paid
by the wire transfer of immediately available funds; and
(ii) (A) if the Public Offering has occurred, that certain number
of Parent Shares which, when taken together ("Total Value of Secondary
Shares"), collectively equals in value the difference between the
Secondary Purchase Price minus the Secondary Cash Purchase Price
(i.e., Total Value of Secondary Shares equals the Secondary Purchase
Price minus the Secondary Cash Purchase Price) at a price per Parent
Share equal to the Additional Parent Shares Value on the Secondary
Purchase Price Calculation Date or (B) if the Public Offering has not
occurred, then by increasing Note 1 and Note 2, pro rata in an
aggregate amount equal to the Secondary Purchase Price minus the
Secondary Cash Purchase Price.
Notwithstanding anything to the contrary contained herein, in the event the
LEI Division EBITDA exceeds the National Record Retrieval EBITDA as of the
Secondary Purchase Price Calculation Date, then the Secondary Purchase Price
will be based on the average of the LEI Division EBITDA and the National Record
Retrieval EBITDA; provided, however, (A) upon the recommendation of Buyer's
Chief Executive Officer or (B) at the request of Xxxxxxxx, if the Board of
Directors of Buyer determines that the national record retrieval business did
not develop in the manner contemplated by the parties hereto despite the
reasonable best efforts of, and satisfactory performance by, Xxxxxxxx, then the
Board of Directors of Buyer , acting in good faith, may elect to adjust the
formula used in connection with the calculation of the Secondary Purchase Price
to take into account a greater percentage of the LEI Division EBITDA.
(c) Interim preliminary calculations of the Secondary Purchase Price
shall be made and paid as follows:
(i) Commencing thirty (30) days after the last day of the sixth
full month following the Closing Date, and on the thirtieth (30th) day
after the last day of every sixth month thereafter until such time as
total interim payments of the Secondary Purchase Price equal $934,000,
the Buyer shall calculate the Secondary Purchase Price as provided in
Section 2.3(b) (except that if the Parent has consummated the Public
Offering, the Additional Parent Shares Value shall be the average
public trading price of each Parent Share over the first ten (10)
business days after the end of each such six-month period) and shall
pay the Seller such amount, if any, by which the amount of six times
the LEI Division EBITDA for the preceding twelve-month period exceeds
the Initial Purchase Price, as adjusted by Section 2.5 (for purposes
of the first six-month period following the Closing Date, all numbers
used to calculate the Secondary Purchase Price shall be those numbers
derived from the preceding six-month period multiplied by two).
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(ii) The amount, if any, by which the interim calculation of the
Secondary Purchase Price exceeds an amount equal to the Initial
Purchase Price plus any prior interim payments made shall be paid as
set forth in Section 2.3(b) above (except that if the Parent has
consummated the Public Offering, the Additional Parent Shares Value
shall be the average public trading price of each Parent Share over
the first ten (10) business days after the end of each such six-month
period).
(iii) At such time as total interim payments of the Secondary
Purchase Price equal or first exceed $934,000, no additional payments
of the Secondary Purchase Price shall be calculated or made until the
Secondary Purchase Price Calculation Date. On the Secondary Purchase
Price Calculation Date, the total amount of any interim payments of
cash, Parent Shares and aggregate increases in the amounts of Note 1
and Note 2 made under this Section 2.3(c) shall be subtracted from the
Secondary Purchase Price and the balance due Seller, if any, paid as
provided in Section 2.3(b) above (except that if the Parent has
consummated the Public Offering, the Additional Parent Shares Value
shall be the average public trading price of each Parent Share over
the first ten (10) business days after the end of each such six-month
period). If according to such calculation Seller has been overpaid,
then Seller shall promptly refund the amount of such overpayment to
Seller by paying the amount of such overpayment in cash, provided
however that at the option of Seller, up to 50% of such overpayment
may be refunded by delivery to Buyer that number of Parent Shares
obtained by dividing fifty percent (50%) of the amount of such
overpayment by the Additional Parent Shares Value over the ten
(10)business day period ending on the forty-fifth (45th) day
following the Secondary Purchase Price Calculation Date.
2.4 DETERMINATION OF FINAL NET WORTH. Each of the Closing Date Balance
Sheet Report, the Closing Date Accounts Receivable Report, the Closing Date
Accounts Payable Report, and the Closing Date Income Statement (collectively,
the "Closing Date Reports") of the Seller shall be prepared by the Seller, as
promptly as possible after the Closing. Seller's accountants shall then review
and certify the Closing Date Reports, and deliver them to Buyer and Buyer's
accountants within 30 days after the Closing Date. The Buyer's accountants
shall review the Closing Date Reports (including any corresponding work papers
of Seller's accountants) and report to the Seller's accountants in writing
within 30 days of receipt thereof of any discrepancy between the Seller's
accountants certification and the Buyer's accountants results of review. If
Seller's accountants and Buyer's accountants cannot resolve such discrepancy
within 30 days after Seller's accountants receipt of such reported discrepancy,
then they shall so notify the Seller and the Buyer, and the Seller and the Buyer
shall attempt to resolve the discrepancy within 15 days of such notice. If the
Seller and the Buyer cannot resolve the discrepancy to their mutual
satisfaction, another independent public accounting firm acceptable to the
Seller and the Buyer shall be retained to review the Closing Date Reports. Such
firm's conclusions as to the carrying values to appear on the Closing Date
Reports for purposes of determining the Final Net Worth of the Seller shall be
conclusive. The Seller and the Buyer shall share equally in the expenses of
retaining such accounting firm. The Buyer shall pay
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the expenses of the Buyer's accountants for their review of the Closing Date
Reports, and the Seller shall pay the expenses of Seller's accountants for their
review of the Closing Date Reports.
2.5 ADJUSTMENT OF PURCHASE PRICE; PAYROLL ADJUSTMENT. After the Closing
Date, the Initial Purchase Price set forth in Section 2.3 shall be adjusted as
follows: If the Final Net Worth as finally determined pursuant to Section 2.4
shall be more than the Guaranteed Net Worth, then each element of the Initial
Purchase Price (cash, principal of Note 1 and principal of Note 2) shall be
increased in proportion to the percentage it represents of the total Initial
Purchase Price paid at Closing. If the Final Net Worth of Seller as finally
determined pursuant to Section 2.4 shall be less than the Guaranteed Net Worth,
then each element of the Initial Purchase Price (cash, principal of Note 1 and
principal of Note 2) shall be decreased in proportion to the percentage it
represents of the total Initial Purchase Price paid at Closing, and Seller shall
promptly return such portion of cash overpayment to Buyer. In addition, the
Parties acknowledge and agree that the Seller has paid or will pay the Seller's
Closing Date payroll (including taxes or other expenses) (collectively, the
"Payroll Amount") as of August 28, and that the Payroll Amount will be reflected
in the Closing Date Reports as an accrued liability. Within five (5) business
days after the Effective Date, Buyer shall pay the Payroll Amount in cash to
Seller. At the time of the adjustment of the Initial Purchase Price pursuant to
this Section 2.5, the Buyer shall pay in cash to Seller the aggregate amount of
the security deposits set forth in Item 2 of Schedule 2.2, entitled Excluded
Assets, subject to offset by any cash amounts owed by Seller to the Buyer as a
result of the adjustment to the Initial Purchase Price.
2.6 Assumption of Liabilities. Upon the terms and subject to the
conditions contained herein, the Buyer agrees that on the Closing Date, it will
not assume any liabilities of Seller except for those liabilities listed as
current liabilities on Seller's Balance Sheet dated May 31, 1997, subject,
however, to adjustments for changes in liabilities occurring in the ordinary
course of Seller's business following May 31, 1997 through the Closing Date, as
determined under Section 2.4 and set forth on the Closing Date Reports ("Assumed
Liabilities"). Buyer specifically excludes and does not assume any liabilities
relating to or arising out of any of Seller's tax obligations, tax claims, tax
charges, tax fines or any related tax liabilities, regardless of the source,
cause or origin of such tax liabilities.
2.7 ALLOCATION OF INITIAL PURCHASE PRICE. For all federal, state and
local tax purposes, the Initial Purchase Price shall be allocated among the
various Assets in the manner indicated in Schedule 2.7 hereto subject to
adjustment pursuant to the Closing Date Reports. None of the Parties shall file
any tax return or report or take any position with any taxing agency or
authority which is inconsistent with the foregoing allocation, except to the
extent mandated by a court of law or the appropriate taxing agency or authority
in a determination binding upon one Party provided that such Party has given
written notice and reasonable opportunity to the other Party to contest and
appeal such determination, at the other Party's expense, on behalf of both
Parties and such determination has nevertheless become final. Within ninety
(90) days after the Closing Date, the Parties shall prepare for filing with the
Internal Revenue Service a Form 8594 in accordance with the foregoing
allocation.
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2.8 TAXES. Seller shall be liable for the payment of all sales and use
taxes arising out of the sale and transfer or removal of the Assets, if any, and
the assumption of the Assumed Liabilities. On or before the Effective Date, the
Seller agrees to furnish to the Buyer certificates from the state taxing
authorities, and any related certificates that the Buyer may reasonably request,
as evidence that all sales and use tax liabilities of the Seller accruing before
the Effective Date have been fully provided for or satisfied. The Buyer shall
not be responsible for any business, occupation, withholding or similar tax, or
any taxes of any kind of the Seller, related to any period before the Effective
Date.
2.9 TITLE TO ASSETS AND RISK OF LOSS. Title to the Assets and risk of loss
or damage to the Assets by casualty (whether or not covered by insurance) will
pass to the Buyer immediately upon completion of the Closing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
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The Seller hereby represents and warrants, except as otherwise set
forth on the Schedules attached hereto, that:
3.1 TITLE TO ASSETS. Up until the Effective Date, the Seller has good,
marketable and indefeasible title to the Assets free and clear of restrictions
or conditions to transfer or assignment, mortgages, liens, pledges, charges,
encumbrances, equities, claims, easements, rights-of-way, covenants, conditions
or restrictions, except with respect to those Assets subject to lease and as
otherwise disclosed on Schedule 3.1. The Seller is in possession of all
property leased to it from others. Except for the Excluded Assets, the Assets
constitute all of the material property, whether real, personal, mixed, tangible
or intangible, that are used in the Business by the Seller.
3.2 TAX RETURNS. Within the times and in the manner prescribed by law,
including extensions permitted thereunder, the Seller has filed and will file
all federal, state and local tax returns required by law and has paid and will
pay all taxes, assessments and penalties, if any, due and payable in connection
with the Business through the Effective Date. There are no pending, or to
Seller's knowledge, threatened disputes as to taxes of any nature payable by the
Seller.
3.3 CONTRACTS, LEASES, AND AGREEMENTS. Schedule 2.1(b) lists all of the
material contracts, leases, agreements, and other written or oral arrangements
relating to the Business to which the Seller is a party, or by which the Seller
or the Assets are bound. As of the Effective Date, each of the Contracts is
valid and in full force and effect, and there has not been any default by the
Seller or, to the best of Seller's knowledge, by any other party to any of the
Contracts, or any event that with notice or lapse of time or both, would
constitute a default by the Seller or, to the best of Seller's knowledge, any
other party to any of the Contracts. Except as shall be disclosed in Schedule
2.1(b), each Contract is assignable to the Buyer without the consent of any
other party. The parties hereby acknowledge and agree that Seller will not
obtain any of the requisite consents relating to the items set forth on Schedule
2.1(b), other than the consent of Simon. Seller has not received notice that
any party to any of the Contracts intends to cancel or terminate any of the
Contracts or exercise
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or not exercise any options that they might have under any of the Contracts. In
the event any of the Contracts are, or are later determined to be, non-
assignable, and the other party to any such Contracts refuses to consent to the
assignment of same, then the Seller shall subcontract to the Buyer or its
designee, if the Buyer so desires, the remaining work on such Contracts, and the
Seller shall forward to the Buyer or its designee all proceeds of such Contracts
received by the Seller; provided, however, that Seller shall be reimbursed for
any reasonable out-of-pocket expenses incurred by it.
3.4 EQUIPMENT. All of the Equipment owned or leased by the Seller is
described on Schedule 2.1(a) attached hereto. Except as disclosed on Schedule
2.1(a), none of the Equipment will be, at the Effective Date, held under any
security agreement, conditional sales contract, or other title retention or
security arrangement or is located other than in the possession of the Seller
except for Equipment that is out of Seller's possession at certain job sites
and/or with certain Seller's agent(s). To the best of Seller's knowledge, the
Equipment is in good operating condition and repair, ordinary wear and tear
excepted.
3.5 INVENTORY. Seller does not own any inventory nor does it utilize any
inventory in its Business.
3.6 LICENSES. Schedule 2.1(b) to this Agreement contains a schedule of all
licenses owned by Seller or in which it has any rights or licenses in connection
with the Business, together with a brief description of each. To the best of
Seller's knowledge, Seller has not infringed, and is not now infringing, on any
license belonging to any other person, firm, or corporation. Seller owns or
holds adequate licenses or other rights to use, all licenses necessary for the
Business as now conducted by it except where failure to own or hold such
licenses will not cause a material adverse effect on the Business, and to the
best of Seller's knowledge, that use does not conflict with, infringe on or
otherwise violate any rights of others. Except as set forth on Schedule 2.1(b),
all of such licenses are fully assignable to Buyer. Seller shall use its
reasonable best efforts to transfer title to all such licenses to Buyer. In the
event any of the licenses are non-assignable and/or non-transferrable, Seller
shall sublicense or otherwise grant the use or make available the use of any
such license which Buyer requests until Buyer obtains an assignment or transfer
of such license or a new license in Buyer's own name.
3.7 EMPLOYMENT CONTRACTS. Except as set forth in Schedule 3.7, Seller
does not have any employment contracts and collective bargaining agreements to
which it is a party or by which it is bound relating to any Employee. No
Employees are represented by any labor organization, and, as of the date hereof,
no labor organization or group of Employees has made a written demand to the
Seller for recognition, or filed a petition with the National Labor Relations
Board, or announced its intention to hold an election of a collective bargaining
representative. There is no pending, or to the best knowledge and reasonable
belief of Seller, threatened, labor dispute, strike or work stoppage affecting
or potentially affecting the Business.
3.8 COMPLIANCE WITH LAWS. The Seller has complied with, and is not in
violation of, applicable federal, state or local statutes, laws, and regulations
(including, without limitation, any applicable building or other law, ordinance
or regulation) that affect, or are likely to affect, directly
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or indirectly, any of the Assets or the Business, except where the failure to so
comply would not have a material adverse effect. The Seller has all permits,
licenses, and authorizations necessary to the conduct of the Business in the
manner and in the areas in which the Business is presently conducted, and all
such permits, licenses, or other authorizations are valid and in full force and
effect, except where the failure to possess such permits, licenses or other
authorizations would not have a material adverse effect on the Business. There
are not any uncured violations, known to Seller, of federal, state or municipal
laws, ordinances, orders, regulations or requirements affecting any portion of
the Assets or the Business.
3.9 LITIGATION. Except as disclosed in Schedule 3.9, there is no suit,
action, arbitration or legal, administrative or other proceeding or governmental
investigation pending or, to the best of Seller's knowledge, threatened against
or affecting the Seller, the Assets, or the Business that could result in a
material adverse effect on the Business.
3.10 NO BREACH OR VIOLATION. As of the Effective Date and except as set
forth on Schedule 3.10, the consummation of the transactions contemplated by
this Agreement will not result in or constitute any of the following: (i) a
default or an event that, with notice or lapse of time or both, would be a
default, breach or violation, or give rise to a right of modification,
termination, cancellation or acceleration of any obligation or to a loss of a
benefit under, except for third party consents described in this Agreement or
any schedule prepared and delivered in connection herewith, of any lease,
license, promissory note, conditional sales contract, commitment, indenture,
mortgage, deed of trust, security agreement, concession, franchise, permit or
other agreement, instrument or arrangement by which the Assets, the Business or
the Seller may be affected, or to which the Assets, the Business or the Seller
may be bound, (ii) the creation or imposition of any lien, charge, or
encumbrance on any of the Assets or the Business, or (iii) a breach of any term
or provision of this Agreement, except for breaches and violations that could
not reasonably be expected to have a material adverse effect on the Business.
3.11 AUTHORITY. The Seller has the full right, power, legal capacity and
authority to execute, deliver and perform its obligations under this Agreement
and all agreements ancillary to this Agreement which are part of the underlying
transaction made on the basis of this Agreement and executed in connection
herewith ("Ancillary Agreements"), and no approvals or consents of any other
person or entity, other than the Seller, are necessary in connection herewith.
3.12 PERSONNEL. Schedule 3.12 sets forth a complete and accurate list of
the names, addresses, hire dates, dates of birth and job descriptions of all
Employees employed by Seller in connection with the Business, current rates of
compensation including, if determined, bonuses payable to each following
Closing. At or after Closing, the Seller shall deliver such additional
information as the Buyer shall reasonably request with respect to such
Employees.
3.13 VALID AND BINDING OBLIGATIONS. Upon execution and delivery, each of
this Agreement, the Ancillary Agreements and each document, instrument and
agreement to be executed by the Seller in connection herewith, will constitute
the legal, valid, and binding obligation of the
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Seller, enforceable in accordance with its terms, except as limited by
bankruptcy laws, insolvency laws, and other similar laws affecting the rights of
creditors generally.
3.14 FINANCIAL STATEMENTS. The financial statements of Seller consist of
unaudited financial statements that have been compiled by the independent
certified public accounting firm of Xxxx Xxxxxxx & XxXxxxxx for the fiscal years
ended December 31, 1994, 1995 and 1996 and for the five month period ended May
31, 1997 (collectively, the "Seller's Financial Statements"). The Seller's
Financial Statements have been prepared in accordance with GAAP consistently
applied and fairly present in all material respects the financial condition and
results of operations of the Seller as at the dates and for the periods then
ended.
3.15 EMPLOYEE BENEFITS. Except as provided in Schedule 3.15, Seller has
no pension, profit-sharing, bonus, deferred compensation, percentage
compensation, severance pay, retirement, insurance, or other employee benefit
plans, including "employee benefit plans" within the meaning of Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA").
3.16 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in Schedule
3.16(a) with regard to the Business and the Assets, since May 31, 1997, there
has been no:
(i) material adverse change in the condition, financial or otherwise,
of the Seller, the Assets or the Business;
(ii) waiver of any right of or claim held by the Seller;
(iii) material loss, destruction or damage to any property of the
Seller, whether or not insured;
(iv) material change in the personnel of the Seller or the terms or
conditions of their compensation or employment;
(v) acquisition or disposition of any assets (or any contract or
arrangement therefor), nor any other transaction by the Seller otherwise
than for value and in the ordinary course of business;
(vi) transaction or disbursement of funds or assets by the Seller
except in the ordinary course of business;
(vii) capital expenditure by the Seller exceeding $10,000 except in
the ordinary course of business;
(viii) change in accounting methods or practices (including, without
limitation, any change in depreciation or amortization policies or rates) by
the Seller;
(ix) re-valuation by the Seller of any of its Assets;
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(x) amendment, modification or termination of any Contract or license
to which the Seller is a party, except in the ordinary course of business;
(xi) mortgage, pledge or other encumbrance of any of the Assets;
(xii) any litigation or facts or circumstances that could result in
litigation that, if adversely determined, might reasonably be expected to
have a material adverse effect on Seller, Seller's financial condition,
Seller's prospects, the Business or the Assets;
(xiii) increase in salary or other compensation payable or to become
payable by the Seller to any of its officers, directors or employees, or the
declaration, payment or commitment or obligation of any kind for the
payment, by the Seller, of a bonus or other additional salary or
compensation to any such person;
(xiv) loan by the Seller to any person or entity, or guaranty by the
Seller of any loan;
(xv) other event or condition of any character that has or might
reasonably be expected to have a material adverse effect on the Business,
Assets or financial condition of the Seller; or
(xvi) agreement by the Seller to do any of the things described in
the preceding clauses (i) through (xv).
Except as disclosed in Schedule 3.16(b), there have been no contractual
commitments by Seller to spend more than $25,000 per contractual commitment over
a continuous 12-month period.
3.17 CONSENTS AND APPROVALS. Except as set forth on Schedule 3.17 no
consent, approval or authorization of, or filing or registration with, any
governmental or regulatory authority, or any other person or entity, is required
to be made or obtained by the Seller in connection with the execution, delivery
or performance of this Agreement by Seller or the consummation of the
transactions contemplated hereby by Seller.
3.18 BROKERS. Neither Seller nor any of Seller's Affiliates has employed
any broker, agent, or finder, or incurred any liability for any brokerage fees,
agent's fees, commission or finder's fees in connection with the transactions
contemplated herein.
3.19 SALE OF ASSETS. For purposes of determining whether a sales and use
tax charge is applicable, the sale of the Assets constitutes (i) the sale of
the entire operating assets of a business or of a separate division, branch, or
identifiable segment of a business, and (ii) a sale outside the ordinary course
of Seller's business, and represents an isolated or occasional sale by a seller
who does not regularly engage in such business. The income and expenses of the
Business can be
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separately established from the Books and Records in the same manner as
previously provided to Buyer.
3.20 ABSENCE OF CERTAIN BUSINESS PRACTICES. Neither the Seller nor any
agent of the Seller, nor to Seller's best knowledge, any other person acting on
Seller's behalf, has, directly or indirectly, within the past five years, given
or agreed to give any gift or similar benefit to any customer, supplier,
government employee of the United States or any state or foreign government, or
other person who is or may be in a position to help or hinder the Business which
(1) would subject the Seller to any damage or penalty in any civil, criminal or
governmental litigation or proceeding, (2) if not given in the past, would have
an adverse effect on the Business, or (3) if not continued in the future, would
have a material adverse effect on the Business or the Assets, or which would
subject the Seller to suit or penalty in a private or governmental litigation or
proceeding.
3.21 LIENS ON ASSETS. Except as set forth on Schedule 3.21, all liens or
security interests of any third party as to any of the Assets have been removed
on or before the Effective Date, and the Seller has furnished evidence thereof
to Buyer.
3.22 CUSTOMERS. To the best of Seller's knowledge, Schedule 3.22
contains a true and correct list of all customers of the Business within the
last year (the "Customers"). The Seller has no information, nor is the Seller
aware of any facts, indicating that any of the material Customers intend to
cease doing business with the Seller.
3.23 INSURANCE POLICIES. Schedule 3.23 to this Agreement is a description
of all insurance policies held by the Seller concerning the Business and Assets.
The Seller maintains insurance protection on all its Assets and the Business of
such types and in such amounts as, to Seller's best knowledge, are customarily
insured by similar companies in the same industry, covering property damage and
loss by fire, theft, or other casualty.
3.24 INTEREST IN CUSTOMERS, SUPPLIERS AND COMPETITORS. Except as set forth
in Schedule 3.24, neither the Seller, nor any Affiliate, spouse or child of the
Seller, has any direct or indirect interest in any competitor, supplier or
customer of any of them, has any direct or indirect interest in any competitor,
supplier or customer of the Seller, or in any person from whom or to whom the
Seller leases any property, or in any other person with whom the Seller is doing
business.
3.25 ADVERSE INFORMATION. Seller does not have any actual knowledge of any
change contemplated in any applicable laws, ordinances or restrictions, or any
judicial or administrative action ( or any event, fact or circumstance) which
will or could be reasonably expected to, have a material adverse effect on the
Seller or its condition, financial or otherwise, the Assets, or the condition,
value or operation thereof.
3.26 ORGANIZATION. The Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of California, has all
necessary powers to own its properties and to operate its business as now owned
and operated by it, and is qualified to do business in the states specified on
Schedule 3.26.
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3.27 CONDITION. All of the Assets are in good operating condition and
repair, ordinary wear and tear excepted, and, as applicable, good working order.
To the knowledge of Seller, the buildings, fixtures, and improvements leased by
the Seller, including but not limited to the plumbing, electrical, air
conditioning, heating and ventilating systems, are in good condition, ordinary
wear and tear excepted, and, as applicable, good working order.
3.28 INTELLECTUAL PROPERTY. All of the Intellectual Property owned by the
Seller is described on Schedule 2.1(e) attached hereto. The Seller is the sole
owner of all of the Intellectual Property, free and clear of any liens,
encumbrances, restrictions, or legal or equitable claims of others. The Seller
has registered all trade names, trademarks, and service marks in all
jurisdictions necessary to evidence and protect its ownership thereof, and to
permit the Seller to conduct its business in the manner in which it is currently
conducted, or otherwise has all rights or licenses necessary to use the same.
The Seller has all patents or patent applications and copyrights registered in
all jurisdictions necessary to evidence and protect the ownership thereof and to
permit the Seller to conduct its business in the manner in which it is currently
conducted, or otherwise has all rights or licenses necessary to use same.
Except as disclosed in this Agreement, all of the patents of the Seller are
valid and in full force and effect and are not subject to any taxes, maintenance
fees, or actions which have not been currently paid. None of the Intellectual
Property infringes upon any patents, trade or assumed names, trademarks, service
marks, or copyrights belonging to any other person or other entity. The Seller
is not a party to any license, agreement, or arrangement, whether as licensor,
licensee, or otherwise, with respect to any of the Intellectual Property. The
Seller does not have a license or a right to use any other patents, service
marks, trademarks, trade and assumed names, trade secrets and royalty rights and
other proprietary intangibles in connection with the Business, other than the
Intellectual Property.
3.29 POWERS OF ATTORNEY. No person or other entity holds a general or
special power of attorney from the Seller.
3.30 NO SEVERANCE PAYMENTS. Except as set forth in Schedule 3.30, the
Seller will not owe a severance payment or similar obligation to any of its
Employees, officers, or directors, as a result of the transactions contemplated
by this Agreement, nor will any of such persons be entitled to an increase in
severance payments or other benefits as a result of the transactions
contemplated hereby, nor in the event of the subsequent termination of their
employment.
3.31 EMPLOYEES. Except as has occurred in the ordinary course of business,
the Seller has not, nor has it agreed to do in any unusual or extraordinary
amount or manner, any of the following acts with respect to its Employees in the
Business: (i) grant any increase in salaries payable or to become payable by it,
(ii) increase benefits, (iii) modify any collective bargaining agreement to
which it is a party or by which it may be bound, or (iv) declare any bonuses for
any of its Employees.
3.32 TAXES. Seller has paid, and shall pay when due, or contest in good
faith, and shall be responsible for paying for, all federal, state, and local
taxes and charges of any kind whatsoever related thereto, which relate to or
arise from the period on or prior to the Closing
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Date, whether such taxes and charges shall be due and payable before or after
the Closing Date. All federal, state and local taxes and charges of any kind
whatsoever relating to the ownership of the Assets shall be prorated as of the
Closing Date.
3.33 HIRING OF EMPLOYEES. As of the Closing Date, Seller shall permit
Buyer to offer employment to all of the Employees. At or prior to Closing,
Seller shall have paid or accrued in the Closing Date Balance Sheet Report all
compensation and benefits to which such Employees are entitled by reason of
their previous employment with the Seller on such date. Seller shall use
Seller's best efforts to assist Buyer in any reasonable manner in the hiring by
Buyer of the Employees that Buyer desires to hire. Buyer shall have the right,
but not the obligation, to offer employment to such Employees that it desires to
hire in its sole discretion. Seller shall be solely responsible and liable for
all severance pay, if any, to the extent that any of the Employees are not
offered employment with Buyer or do not accept an offer of employment. Under no
circumstances shall the Seller or any of Seller's Affiliates be permitted to
employ or offer employment to any of the Employees after the Closing Date,
without the prior written consent of Buyer.
3.34 OPERATIONS OF THE SELLER. Except as disclosed in Schedule 3.34, since
May 31, 1997:
(i) the Seller has used its best efforts to preserve the business
organization of the Seller intact, to keep available to the Business the
Employees, and to preserve its present relationships with suppliers, customers
and others having business relationships with it;
(ii) the Seller has maintained its existing insurance as to the Business and
the Assets, and otherwise maintained and operated the Business in a good and
businesslike manner in accordance with good and prudent business practices;
(iii) the Seller has not entered into any agreement or instrument which
would bind Buyer, the Seller or the Assets after Closing, other than in the
ordinary course of business, or which would be outside the normal scope of
maintaining and operating the Business and the Assets in the ordinary course of
business;
(iv) the Seller has performed all of the Seller's material obligations under
all contracts and commitments applicable to the Seller, the Business, or the
Assets, and has maintained the Seller's books of account and records relating to
the Business in the usual, regular and customary manner;
(v) to the best of Seller's knowledge, the Seller has complied with all
statutes, laws, ordinances and regulations applicable to the Seller, the Assets,
and the conduct of the Business;
(vi) except in the ordinary course of business, neither the Seller nor any
of the shareholders of Seller has removed or disposed of, nor permitted the
removal or disposal of, any assets of the Seller unless such assets were
replaced with an item of at least equal value that is properly suited for its
intended purpose;
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(vii) the Seller has paid all bills and other payments due with respect to
the ownership, use, insurance, operation and maintenance of the Business or the
Assets in the usual, regular and customary manner consistent with its prior
practices, and has taken all action necessary or prudent to prevent liens or
other claims for the same from being filed or asserted against any part of the
Assets; and
(viii) all revenues received by the Seller relating to the Business have
been deposited in the Seller's account relating to the Business.
3.35 FULL DISCLOSURE. This Agreement, the Schedules and Exhibits hereto,
and all other documents and written information furnished by the Seller to the
Buyer pursuant hereto or in connection herewith, are true, complete and correct,
and do not include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements made herein and therein not
misleading. To the best of Seller's knowledge, there are no facts or
circumstances relating to the Assets or the Business which adversely affect or
might reasonably be expected to adversely affect the Assets, the Business or the
ability of the Seller to perform this Agreement or any of Seller's obligations
hereunder.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER AND PARENT
--------------------------------------------------
Each of Buyer and Parent represents and warrants, except as otherwise set
forth on the Schedules attached hereto, that:
4.1 ORGANIZATION. The Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of California and has
all the necessary corporate powers to own its properties and to carry on its
business as now owned and operated by it. The Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Texas and has all the necessary corporate powers to own its properties and to
carry on its business as now owned and operated by it.
4.2 AUTHORITY. Each of Buyer and Parent, as applicable, has the right,
power, legal capacity, and authority to execute, deliver and perform this
Agreement and the Ancillary Agreements to which it is a party. The execution,
delivery and performance of this Agreement and any Ancillary Agreements to which
it is a party by Buyer and Parent, as applicable, have been duly authorized by
all necessary corporate action.
4.3 VALID AND BINDING OBLIGATIONS. Upon execution and delivery, each of
this Agreement and the Ancillary Agreements to which it is a party will
constitute the legal, valid, and binding obligation of Buyer or Parent, as
applicable, enforceable in accordance with its terms, except as limited by
bankruptcy laws, insolvency laws, and other similar laws affecting the rights of
creditors generally.
-20-
4.4 BROKERS. Neither Buyer nor any of its respective Affiliates, officers,
directors, or employees, has employed any broker, agent, or finder, or incurred
any liability for any brokerage fees, agent's fees, commissions or finder's fees
in connection with the transactions contemplated herein, except for the fee
payable to The Gulfstar Group, Inc., which fee shall be paid solely by Buyer or
its Affiliates in connection with this transaction.
4.5 CONSENTS AND APPROVALS. Except as set forth on Schedule 4.5,
(a) No consent, approval or authorization of, or filing or
registration with, any governmental or regulatory authority, or any other
person or entity, is required to be made or obtained by Buyer or Parent in
connection with the execution, delivery and performance of this Agreement
and the Ancillary Agreements to which it is a party and the consummation of
the transactions contemplated hereby.
(b) Neither the execution and delivery of this Agreement or the
Ancillary Agreements to which it is a party nor the consummation of the
transactions contemplated hereby or thereby will (i) violate any provision
of the Articles of Incorporation or Bylaws of either Buyer or Parent or (ii)
conflict with, or result (immediately or upon the giving of notice or the
passage of time or both) in any violation of or any default under, or give
rise to a right of modification, termination, cancellation or acceleration
of any obligation or to a loss of a benefit under, any mortgage, indenture,
lease, instrument, permit, concession, franchise, license or other agreement
which either the Buyer or Parent or its properties or assets is a party to,
beneficiary of, or bound by, or violate any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to either the Buyer
or Parent or its properties or assets, other than such conflicts,
violations, or defaults or possible modifications, terminations,
cancellations or accelerations which individually or in the aggregate do not
and will not have a material adverse effect on the Buyer or the Parent.
4.6 FINANCIAL STATEMENTS. Buyer has delivered to Seller the unaudited
consolidated balance sheet, unaudited consolidated income statement, and
unaudited consolidated cash flow statement of Parent for the periods commencing
on January 17, 1997, and ending May 31, 1997, and June 30, 1997, respectively
(the "Parent Financial Statements"). Each of the Parent Financial Statements
(i) fairly represents the financial position of Parent and its consolidated
subsidiaries as of each respective Parent Financial Statement date, and the
results of their operations for the respective periods indicated, and (ii) were
true and correct in all material respects as of the respective dates thereof,
subject to finalization of purchase accounting adjustments in accordance with
GAAP.
4.7 ASSUMED LIABILITIES. Buyer shall assume the Assumed Liabilities as
defined in Section 2.6 herein.
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4.8 ABSENCE OF CERTAIN CHANGES. Since May 31, 1997, there have been no
(a) material adverse changes in the business, financial condition, assets,
operations or prospects of Parent, (b) amendments, modifications or terminations
of any material contract applicable to Parent, (c) any changes in the accounting
methods or practices of Parent, (d) any litigation or facts or circumstances
that could result in litigation that, if adversely determined, might reasonably
be expected to have a material adverse effect on Parent or on its business,
financial condition or prospects, or (e) other event or condition of any
character that has or might reasonably be expected to have a material adverse
effect of the business, financial condition, assets, operations or prospects of
Parent.
4.9 FULL DISCLOSURE. No representation or warranty of the Buyer or Parent
in this Article IV or in any other Article of this Agreement or in the Ancillary
Agreements to which it is a party or any schedule, exhibit, certificate or other
document furnished or to be furnished by the Buyer or Parent to the Seller
pursuant to this Agreement or any Ancillary Agreements to which it is a party,
contains or will contain any untrue statement of a material fact or omits or
will omit to state a material fact necessary to make the statements made herein
or therein not misleading. To the best of Buyer and Parent's knowledge, there
are no facts or circumstances relating to the business, financial condition,
assets, operations or prospects of Buyer or Parent which adversely affect or
might reasonably be expected to adversely affect the business, financial
condition, assets or operations of Buyer or Parent, or the ability of Buyer or
Parent to perform this Agreement or the Ancillary Agreements to which it is a
party or any of Buyer or Parent's obligations thereunder.
ARTICLE V
COVENANTS OF THE PARTIES
------------------------
Buyer and Seller covenant and agree as follows:
5.1 CONDUCT OF THE BUSINESS. Except as otherwise permitted by this
Agreement or consented to by Buyer in writing, Seller shall conduct the Business
in the ordinary course in substantially the same manner as heretofore, using its
best efforts to preserve intact its present business organization, to keep
available the services of its Employees, and to preserve its relationships with
customers, suppliers and others having business dealings with it.
5.2 CERTAIN CHANGES. Except as otherwise permitted by this Agreement or
consented to by Buyer in writing, Seller shall not: (a) subject any of the
Assets to any lien or encumbrance; (b) dispose of any of the Assets; (c) grant
any increase in compensation or benefits to any Employee, except for periodic
bonuses in the ordinary course consistent with past practices; (d) materially
modify any of the Assumed Liabilities, or (e) with respect to the Business,
perform any act outside the ordinary course of the Business except as otherwise
contemplated by this Agreement.
5.3 NOTICE. Seller will notify Buyer immediately in writing if (i) any of
Seller's representations or warranties set forth in this Agreement are or become
untrue prior to the Closing Date, (ii) Seller fails to fully perform all of the
covenants of Seller set forth in this Agreement, or (iii) there occurs any
material adverse development in the Business or Seller's market position,
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sales, profit trends, labor regulations, litigation or insurance claims or
otherwise of which Seller has knowledge or reasonable belief prior to Closing.
5.4 RECORD RETENTION. From and after the Closing, Buyer shall permit
Seller the right, during normal business hours, to inspect any documents, books,
records or other information pertaining to the Assets for any reason whatsoever.
For a period of three (3) years following the Closing Date, Buyer agrees not to
destroy any files or records which are subject to this Section 5.4 without
giving reasonable notice to the Seller, and within fifteen (15) business days of
receipt of such notice, the Buyer may cause to be delivered to Seller the
records intended to be destroyed, at the Seller's expense.
5.5 BULK SALES. It may not be practicable to comply or attempt to comply
with the procedures of Division 6 of the California Commercial Code (the
"California Bulk Sales Act"). Accordingly, to induce Buyer to waive any
requirements for compliance with any or all of such laws, Seller hereby agrees
that except for the Assumed Liabilities, the indemnity provisions of Article VII
hereof shall apply to any damages of Buyer arising out of or resulting from the
failure of Buyer or Seller to comply with the California Bulk Sales Laws.
5.6 NON-COMPETITION AGREEMENT. The Seller agrees that, for the period
beginning on the Closing Date and continuing for three (3) years following the
Closing Date, neither Xxxxxxxx, individually, Simon, individually, nor any of
their Affiliates, shall, either directly or indirectly, individually or
separately, for themselves or as a shareholder of a privately-held company, a
greater than 5% shareholder of a publicly traded company, owner, partner, joint
venturer, promoter, consultant, manager, independent contractor, agent, or in
some similar capacity for any reason whatsoever:
A. Enter into, engage in, or be connected with any business or business
operation or activity which consists in whole or in part of the
Business within the following counties in the state of California:
Ventura, Los Angeles, San Diego, Orange and any other counties
included within a fifty mile radius of the federal courthouses in San
Francisco and Sacramento.
B. Call upon any customer whose account is or was serviced in whole or in
part by the Seller in relation to the Business within twelve (12)
months prior to the date hereof, or the Buyer, with the intent of
selling or attempting to sell to any such customer any services
similar to the services provided by the Buyer; and
C. Intentionally divert, solicit or take away any customer, supplier or
employee of the Buyer, or the patronage of any customer or supplier of
the Buyer, or otherwise interfere with or disturb the relationship
existing between the Buyer and any of its customers, suppliers, or
employees, directly or indirectly.
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In the event the Buyer ceases operation of the Business other than in a
merger, consolidation, or similar transaction, or upon the filing of a
bankruptcy or receivership proceeding against the Buyer, or upon the appointment
of a liquidator for the Buyer, the provisions of this Section 5.6 will not be
applicable to the conduct of Seller subsequent thereto.
Notwithstanding anything to the contrary contained herein, it is understood
and agreed that the foregoing provisions contained in this Section 5.6 shall not
apply to: (i) an individual named in Section 5.6 if that particular individual
executes an Employment Agreement as of the Closing Date with the Buyer or (ii)
any relationship or affiliation now existing or hereafter created between Simon
and FYI or Simon and Florida Medical Records Service and the business conducted
or services rendered thereby. It is mutually understood and agreed that if any
of the provisions relating to the scope, time or territory in this Section 5.6
are more extensive than is enforceable under applicable law or are broader than
necessary to protect the goodwill and legitimate business interests of the
Buyer, then the Parties agree that they will reduce the degree and extent of
such provisions by whatever minimal amount is necessary to bring such provisions
within the ambit of enforceability under applicable law.
The Parties acknowledge that the remedies at law for breach of Seller's
covenants contained in this Section 5.6 are inadequate, and they agree that the
Buyer shall be entitled, at its election, to injunctive relief (without the
necessity of posting bond against such breach or attempted breach), and to
specific performance of such covenants in addition to any other remedies at law
or equity that may be available to the Buyer.
5.7 TERMINATION OF EMPLOYMENT OF SELLER'S EMPLOYEES. Buyer anticipates
extending an offer of employment to substantially all of the employees of the
Seller on substantially the same terms and conditions as the Employees currently
are employed by Seller. Notwithstanding the foregoing, nothing herein shall
imply or guarantee employment of any Employee of Seller by Buyer. If Seller's
Employees desire employment with Buyer, they will be interviewed in conjunction
with the applicants from other sources and given strong consideration for
available positions with Buyer, at the wages, hours, and conditions of
employment established by Buyer prior to hiring any employees. Seller agrees to
use its best efforts to make available the Employees to the Buyer that Buyer
desire to hire for the purpose of operating the Business. Notwithstanding
anything to the contrary contained herein, Buyer agrees that it will offer to
employ substantially all of Seller's employees. Nothing shall prohibit Buyer
from terminating any of Seller's Employees subsequent to their employment by
Buyer.
5.8 ADDITIONAL FINANCIAL STATEMENTS. Seller shall promptly furnish to
Buyer a copy of all unaudited financial statements for each additional month end
period beyond May 31, 1997 as soon as same is regularly prepared by Seller in
the ordinary course of its business. All such additional financial statements
shall be subject to the same representations and warranties as contained in
Section 3.14 of this Agreement. The Parties acknowledge and agree that Buyer
shall be permitted to conduct at its sole cost and expense an audit of Seller
for the fiscal years ended 1994, 1995 and 1996 in connection with any Public
Offering.
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5.9 NAME CHANGE AND REQUALIFICATION DOCUMENTS. At or prior to the
Closing, the Seller will execute, deliver and file, or cause to be executed,
delivered and filed, all necessary or reasonably requested amendments to
Seller's articles of incorporation, and such other documents as may be required
to change Seller's name to a name reasonably acceptable to Seller, Buyer and
Parent. In addition, Seller hereby consents to an Affiliate of Buyer
incorporating or changing its corporate name to "Legal Enterprises, Inc." or any
name substantially similar thereto, or filing such assumed name certificates as
Buyer deems reasonable, necessary or appropriate. In addition, at or prior to
Closing, Seller and its Affiliates shall execute and deliver such assignments,
terminations and cancellations of assumed and trade names as Buyer may request.
Seller shall cooperate with Buyer in connection with all filings relating to the
use of Seller's name or names and with any filings that Buyer may desire to make
in order to effect such name change or otherwise protect such name.
5.10 CONSENTS TO ASSIGNMENTS. Pursuant to Section 3.3, Seller has
represented and warranted that except as disclosed in Schedule 2.1(b), each
Contract is assignable to the Buyer without the consent of any other party. The
parties hereby acknowledge and agree that the Seller has not obtained, and is
not required to obtain, consents to assignment of any of the Contracts (other
than the consent of Simon), provided that Seller, Xxxxxxxx and Xxxxx hereby
agree that they will cooperate with Buyer after the Closing in obtaining the
required consents, and will, at Buyer's cost and expense, take such action as
Buyer may reasonably request in order to obtain, or to assist Buyer in
obtaining, such consents.
ARTICLE VI
THE CLOSING
-----------
6.1 CLOSING. Payment of the Purchase Price required to be made by the
Buyer to the Seller and the transfer of the Assets by the Seller and the other
transactions contemplated hereby shall take place on the Closing Date at the
offices of Xxxxx, Xxxxx & Xxxxxx Incorporated, 0 Xxxxxxxx Xxxxx, Xxxxx 0000,
Xxxxxxx, Xxxxx 00000 or by fax unless the time or location is changed by mutual
agreement of the Parties. At the Closing, (a) the Seller will deliver to the
Buyer the various certificates, instruments, and documents referred to in
Section 6.2 below, (b) the Buyer will deliver to the Seller the various
certificates, instruments, and documents referred to in Section 6.3 below, and
(c) the Buyer will deliver to the Seller the Purchase Price specified in Section
2.3 above.
6.2 CONDITIONS TO OBLIGATIONS OF THE BUYER. The obligation of the Buyer
to proceed with the Closing and consummate the transactions to be performed by
it in connection with the Closing is subject to satisfaction of the following
conditions:
(a) the representations and warranties of Seller hereunder shall be
true and correct in all material respects at and as of the Closing Date;
(b) the Seller shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
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(c) no action, suit, or proceeding shall be pending before any court
or quasi-judicial or administrative agency of any federal, state, local, or
foreign jurisdiction or before any arbitrator wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would (i) prevent
consummation of any of the transactions contemplated by this Agreement, (ii)
cause any of the transactions contemplated by this Agreement to be rescinded
following consummation, or (iii) affect adversely in any material respect
the rights in and to the Assets (and no such injunction, judgment, order,
decree, ruling, or charge shall be in effect);
(d) the Seller shall have delivered to the Buyer a certificate to the
effect that each of the conditions specified above in Section 6.2(a) -(c) is
satisfied in all respects;
(e) the Buyer shall have received from counsel to the Seller an
opinion in form and substance acceptable to Buyer, addressed to the Buyer,
and dated as of the Closing Date containing such assumptions and
qualifications as may be reasonably acceptable to Buyer's legal counsel;
(f) Xxxxxxxx, individually, shall have entered into a separate
Employment Agreement with Buyer in the form attached hereto as EXHIBIT B
(the "Employment Agreement");
(g) The Seller shall have delivered to Buyer instruments of assignment
and transfer or bills of sale signed by Seller as the Buyer shall reasonably
request, including the Xxxx of Sale in substantially the form attached
hereto as EXHIBIT C (the "Xxxx of Sale");
(h) Seller shall have delivered to Buyer affidavits or other reliable
evidence reasonably satisfactory to Buyer and its counsel of Seller's
authority to sell the Assets;
(i) Buyer shall have completed its due diligence review of Seller and
the Business and been satisfied with the results;
(j) The Board of Directors and shareholders of Seller shall have
approved the terms of this transaction and Seller shall have delivered a
certificate therefore to Buyer;
(k) The Board of Directors of Buyer shall have approved the terms of
this transaction;
(l) Seller shall have entered into with Parent a Registration Rights
Agreement in a form similar to those previously entered into by similarly
situated shareholders of Parent and reasonably acceptable to Buyer and its
counsel (the "Registration Rights Agreement");
(n) Seller shall have delivered to Buyer a Contingent Stock Pledge
Agreement in substantially the form of EXHIBIT D attached hereto (the "Stock
Pledge Agreement");
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(o) Buyer shall have received approval from its senior lender to fund
the Initial Cash Purchase Price under its acquisition line of credit;
(p) Seller shall have delivered to Buyer all other items required or
requested to be delivered hereunder, including the Subordination Agreements,
such requested items to be reasonably necessary or reasonably appropriate to
facilitate consummation of the transactions contemplated hereby; and
(q) All actions to be taken by the Seller in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form and
substance to the Buyer.
The Buyer may waive any condition specified in Section 6.2 if it executes a
writing so stating at or prior to the Closing Date.
6.3 CONDITIONS TO OBLIGATIONS OF THE SELLER. The obligation of the Seller
to proceed with Closing and consummate the transactions to be performed by it in
connection with the Closing is subject to satisfaction of the following
conditions:
(a) the representations and warranties of Buyer and Parent hereunder
shall be true and correct in all material respects at and as of the Closing
Date;
(b) the Buyer shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(c) no action, suit, or proceeding shall be pending before any court
or quasi-judicial or administrative agency of any federal, state, local, or
foreign jurisdiction or before any arbitrator wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would (A) prevent
consummation of any of the transactions contemplated by this Agreement, or
(B) cause any of the transactions contemplated by this Agreement to be
rescinded following consummation (and no such injunction, judgment, order,
decree, ruling, or charge shall be in effect);
(d) each of Buyer and Parent shall have delivered to the Seller a
certificate to the effect that each of the conditions applicable to it which
are specified above in Section 6.3(a)-(c) is satisfied in all respects;
(e) the Seller shall have received from counsel to the Buyer an
opinion in form and substance acceptable to Seller, addressed to the Seller,
and dated as of the Closing Date containing such assumptions and
qualifications as may be reasonably acceptable to Seller's legal counsel;
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(f) the Buyer shall have paid the Initial Purchase Price required by
Section 2.3, including delivery of Note 1 and Note 2;
(g) the Buyer shall have entered into the Employment Agreement;
(h) Seller shall have completed its due diligence review of Buyer and
Parent and been satisfied with the results;
(i) The Buyer shall have caused Parent to enter into the Registration
Rights Agreement with Seller in a form similar to those previously entered
into by similarly situated shareholders of Parent;
(j) The Board of Directors and shareholders of Seller shall have
approved the terms of this transaction;
(k) The Board of Directors of Buyer shall have approved the terms of
this transaction and Buyer shall have delivered a certificate therefore to
Seller;
(l) The Buyer shall have entered into the Stock Pledge Agreement; and
(m) all actions to be taken by the Buyer in connection with
consummation of the transactions contemplated hereby, and all certificates,
opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form and
substance to the Seller.
The Seller may waive any condition specified in this Section 6.3 if Seller
executes a writing so stating at or prior to the Closing.
6.4 INSURANCE AND AD VALOREM TAXES. The Buyer shall be obligated to make
all premium payments necessary to continue the existing insurance on the
Business commencing as of the Effective Date, and Seller shall cooperate with
Buyer in assigning such insurance to Buyer, in pursuing any claims thereunder
and in assigning and delivery to Buyer any proceeds payable thereunder. Buyer
shall refund to Seller any insurance premium payments that have been prepaid.
With regard to ad valorem taxes on the Assets for the 1997 tax year, the Seller
and the Buyer agree that the taxes to be paid shall be prorated as of the
Effective Date.
6.5 FURTHER ASSURANCES. At and after the Closing, each of the Parties
shall take all appropriate action and execute all documents of any kind which
may be reasonably necessary or desirable to carry out the transactions
contemplated hereby. The Seller, at any time at or after the Closing, will
execute, acknowledge and deliver any further bills of sale, assignments and
other assurances, documents and instruments of transfer, reasonably requested by
the Buyer, and will take any other action consistent with the terms of this
Agreement that may reasonably be requested by
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the Buyer, for the purpose of assigning and confirming to the Buyer, all of the
Assets. The Buyer shall notify the Seller promptly, and in no event more than
ten (10) business days after the Buyer's receipt, of any tax inquiries or
notifications thereof which relate to any period prior to the Effective Date,
and the Seller shall prepare and deliver responses to such inquiries as the
Seller deems necessary or appropriate. In addition, the Seller shall make
available the books and records of the Business during reasonable business hours
and take such other actions as are reasonably requested by the Buyer to assist
the Buyer in the operation of the Business.
6.6 CONFIDENTIAL INFORMATION. After the Closing and except as otherwise
specifically permitted in this Agreement, each party to this Agreement agrees,
on behalf of itself and its Affiliates, to use reasonable efforts not to
divulge, communicate, use to the detriment of any other party to this Agreement
or its Affiliates or for the benefit of any other person or persons, any
confidential information or trade secrets of such other party with respect to
the Assets or the Business, including personnel information, secret processes,
know-how, customer lists, formulae, or other technical data; provided, if any
party to this Agreement or any of its Affiliates is compelled to disclose such
information to any tribunal, regulatory or governmental authority or agency or
else stand liable for contempt or suffer other censure and penalty, such party
may so disclose such information without any liability hereunder.
6.7 ASSIGNMENT OF CONTRACTS. On or before the Effective Date, Seller
shall have delivered to Buyer all of the Contracts presently in force and shall
have effected a valid assignment of all of Seller's rights and obligations
thereunder.
6.8 SHAREHOLDERS' AGREEMENT; INVESTMENT REPRESENTATIONS. No Parent Shares
can or will be issued upon conversion of Note 2 until Seller becomes a party to
a Shareholders' Agreement in the form required by the Parent ("Shareholders'
Agreement") and gives appropriate investment representations concerning
knowledge about the investment and acknowledgments of any applicable
restrictions on transferability.
ARTICLE VII
INDEMNIFICATION
---------------
7.1 INDEMNIFICATION.
A. BY THE SELLER AND SELLER'S SHAREHOLDERS. Subject to Section
7.1(E) hereof, the Seller and Xxxxxxxx, jointly and severally, and Simon,
severally but not jointly, (collectively herein "Seller Indemnitors") shall
indemnify, save, defend and hold harmless the Buyer and Buyer's shareholders and
the directors, officers, partners, agents and employees of each (collectively,
the "Buyer Indemnified Parties") from and against any and all costs, lawsuits,
losses, liabilities, deficiencies, claims and expenses, including interest,
penalties, attorneys' fees and all amounts paid in investigation, defense or
settlement of any of the foregoing (collectively referred to herein as
"Damages"), (i) incurred in connection with or arising out of or resulting from
or incident to any breach of any covenant, breach of warranty as of the
Effective Date, or the inaccuracy of any representation as of the Effective
Date, made by the Seller in or pursuant to this Agreement or any
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other agreement contemplated hereby or in any schedule, certificate, exhibit, or
other instrument furnished or to be furnished by the Seller or its Affiliates
under this Agreement, or (ii) based upon, arising out of, or otherwise in
respect of any liability or obligation of the Business or relating to the Assets
relating to any period prior to the Effective Date, other than those Damages
based upon or arising out of the Assumed Liabilities; provided, however, that
the Seller shall not be liable for any such Damages to the extent, if any, such
Damages result from or arise out of a breach or violation of this Agreement by
any Buyer Indemnified Parties.
B. BY THE BUYER AND THE PARENT. Subject to Section 7.1(E) hereof,
the Buyer and Parent shall indemnify, save, defend and hold harmless the Seller,
Seller's successors in interest or heirs, Xxxxxxxx and Xxxxx (collectively, the
"Seller Indemnified Parties") from and against any and all Damages (i) incurred
in connection with or arising out of or resulting from or incident to any breach
of any covenant , breach of warranty as of the Effective Date, or the inaccuracy
of any representation as of the Effective Date, made by the Buyer and/or Parent
in or pursuant to this Agreement or any other agreement contemplated hereby or
in any schedule, certificate, exhibit, or other instrument furnished or to be
furnished by the Buyer and/or Parent under this Agreement, or (ii) based upon,
arising out of or otherwise in respect of any liability or obligation of the
Business or relating to the Assets (a) relating to any period on and after the
Effective Date, other than those Damages based upon or arising out of the
liabilities other than Assumed Liabilities (the "Retained Liabilities"), or (b)
arising out of facts or circumstances existing on and after the Effective Date,
other than those Damages based upon or arising out of the Retained Liabilities;
provided, however, that neither Buyer nor Parent shall be liable for any such
Damages if such Damages result from or arise out of a breach or violation of
this Agreement by any Seller Indemnified Parties.
C. DEFENSE OF CLAIMS. If any lawsuit or enforcement action is filed
against any Party entitled to the benefit of indemnity hereunder, written notice
thereof describing such lawsuit or enforcement action in reasonable detail and
indicating the amount (estimated, if necessary) or good faith estimate of the
reasonably foreseeable estimated amount of Damages (which estimate shall in no
way limit the amount of indemnification the indemnified Party is entitled to
receive hereunder), shall be given to the indemnifying Party as promptly as
practicable (and in any event within ten (10) days, after the service of the
citation or summons) ("Notice of Action"); provided that the failure of any
indemnified Party to give timely notice shall not affect its rights to
indemnification hereunder to the extent that the indemnified Party demonstrates
that the amount the indemnified Party is entitled to recover exceeds the actual
damages to the indemnifying Party caused by such failure to so notify within ten
(10) days and so long as the indemnifying Party is not materially prejudiced by
the failure to receive such notice. The indemnifying Party may elect to
compromise or defend any such asserted liability and to assume all obligations
contained in this Section 7.1 to indemnify the indemnified Party by a delivery
of notice of such election ("Notice of Election") within ten (10) days after
delivery of the Notice of Action. Upon delivery of the Notice of Election, the
indemnifying Party shall be entitled to take control of the defense and
investigation of such lawsuit or action and to employ and engage attorneys of
its own choice to handle and defend the same, at the indemnifying Party's sole
cost, risk and expense, and such indemnified Party shall cooperate in all
reasonable respects, at the indemnifying Party's sole cost, risk and expense,
except with respect to the fees and expenses of the indemnified Party's
attorney, which shall be borne by
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the indemnified Party, with the indemnifying Party and such attorneys in the
investigation, trial, and defense of such lawsuit or action and any appeal
arising therefrom; provided, however, that the indemnified Party may, at its own
cost, risk and expense, participate in such investigation, trial and defense of
such lawsuit or action and any appeal arising therefrom. If the Notice of
Election is delivered to the indemnified Party, the indemnified Party shall not
pay, settle or compromise such claim without the indemnifying Party's consent,
which consent shall not be unreasonably withheld. If the indemnifying Party
elects not to defend the claim of the indemnified Party or does not deliver to
the indemnified Party a Notice of Election within ten (10) days after delivery
of the Notice of Action, the indemnified Party may, but shall not be obligated
to defend, provided that in no circumstance shall the indemnified Party
compromise or settle the claim or other matter on behalf or for the account of
the indemnifying Party without the consent of the indemnifying Party, which
shall not be unreasonably withheld.
D. THIRD PARTY CLAIMS. The provisions of this Section 7.1 are not
limited to matters asserted by the Parties, but cover Damages incurred in
connection with third party claims. The indemnity hereunder is in addition to
any and all rights and remedies of the Parties in connection herewith.
E. LIMITATION ON INDEMNIFICATION. Notwithstanding the other
provisions of this Section 7.1, Seller Indemnitors shall not be liable to Buyer
Indemnified Parties, and Buyer shall not be liable to Seller Indemnified
Parties, for the first $25,000 in aggregate Damages suffered by such indemnified
Parties; provided, however, that once any such indemnified Parties have suffered
Damages aggregating in excess of $25,000, the indemnifying Party shall
reimburse the indemnified Parties for the full amount of such Damages, including
the $25,000 in Damages initially excluded. In no event shall the aggregate
Damages payable by an indemnifying Party to indemnified Parties exceed one-half
(1/2) of the Purchase Price.
7.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations, warranties, covenants and agreements contained in this
Agreement shall survive the Closing hereunder and continue in full force and
effect for two (2) years thereafter, except that the representations and
warranties contained in Sections 3.1, 3.2 and 3.33 shall survive for a period of
three (3) years after Closing.
ARTICLE VIII
REMEDIES
--------
8.1 SPECIFIC PERFORMANCE; REMEDIES. Each of the Parties hereby agrees that
the transactions contemplated by this Agreement are unique, and that each Party
shall have, in addition to any other legal or equitable remedy available to it,
the right to enforce this Agreement by decree of specific performance. If any
legal action or other proceeding is brought for the enforcement of this
Agreement, or because of an alleged dispute, breach, default or
misrepresentation in connection with any of the provisions of this Agreement,
the successful or prevailing Party or Parties shall be entitled to recover
reasonable attorneys' fees and other costs incurred in that action or proceeding
in addition to any other remedies to which it, he or they may be entitled at law
or equity. The rights
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and remedies granted herein are cumulative and not exclusive of any other right
or remedy granted herein or provided by law.
8.2 OFFSET; REMEDIES. To the extent not otherwise prohibited by applicable
law, (i) all amounts due and owing by the Buyer to the Seller under this
Agreement, Note 1, Note 2, or any document, instrument, or agreement executed in
connection herewith, and (ii) the Parent Shares, if issued, shall be subject to
offset by the Buyer to the extent of any Damages incurred by Buyer that have
triggered an indemnification obligation of Seller under Section 7.1.A. In the
event Buyer elects to offset any such Damages, Buyer shall furnish Seller notice
containing detailed information with respect to such Damages, the specific
obligation of Seller that triggered such Damages and such other information as
may be reasonably appropriate in respect of Seller's consideration of such claim
(an "Offset Claim"). Seller shall have twenty (20) days after receipt of such
information to dispute any such Offset Claim, and shall so notify Buyer of the
basis for such dispute. If the Parties are unable to resolve such dispute
within fifteen (15) days, the Offset Claim shall be submitted to arbitration, as
further described in Section 9.14. If Seller agrees to pay such Offset Claim or
fails to contact Buyer within such twenty (20) day period, and pending final
resolution of any Offset Claim which has been submitted to arbitration, the
offset shall be applied as follows (the act of offsetting by Buyer shall be
referred to as an "Offset"): (a) First against Note 1 until the full amount of
Note 1, both principal and interest, has been repaid, (b) next against Note 2
until the full amount of Note 2, both principal and interest, has been repaid,
and (c) finally, against the Parent Shares. In order to secure the Buyer's
offset rights against the Parent Shares, Buyer and Seller shall execute the
Stock Pledge Agreement. Upon issuance, the Parent Shares shall have a
restrictive legend typed on the back thereof specifying that the Parent Shares
are subject to a right of offset as specified in this Agreement. The Seller
acknowledges and agrees that but for the right of Offset contained in this
Agreement, the Buyer would not have entered into this Agreement or any of the
transactions contemplated herein. Notwithstanding anything contained herein to
the contrary, the offset rights of Buyer hereunder shall terminate in the manner
set forth in Section 7.2.
ARTICLE IX
MISCELLANEOUS
-------------
9.1 FEES. Except as expressly set forth herein to the contrary, each Party
shall be responsible for all costs, fees and expenses (including attorney and
accountant fees and expenses) paid or incurred by such Party in connection with
the preparation, negotiation, execution, delivery and performance of this
Agreement, or otherwise in connection with the transaction contemplated hereby.
9.2 MODIFICATION OF AGREEMENT. This Agreement may be amended or modified
only in writing signed by all of the Parties.
9.3 NOTICES. All notices, consents, demands or other communications
required or permitted to be given pursuant to this Agreement shall be deemed
sufficiently given when delivered personally or telefaxed with receipt of
transmission confirmed during regular business hours during a business day to
the appropriate location described below, or three (3) business days after
posting
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thereof by United States first-class, registered or certified mail, return
receipt requested, with postage and fees prepaid and addressed as follows:
IF TO SELLER: Legal Enterprise, Inc.
Attn: Xx. Xxxx X. Xxxxxxxx, President
0000-0 Xxx Xxxxxxxx Xxxx
Xxxxxxxxx, Xxxxxxxxxx 00000
Phone: 818/000-0000
Fax: 818/000-0000
Copy to: Xxxxxxx X. Xxxxxxxxx
Xxxxxxx & XxXxxxxx
000 X. Xxxxx Xxx. 00xx Xxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Phone: 213/000-0000
Fax: 213/000-0000
IF TO XXXXXXXX: Xx. Xxxx X. Xxxxxxxx
000 Xxxxxxxx Xxxxxx
Xxxxxxxx Xxxx, Xxxxxxxxxx 00000
Phone: 805/000-0000
IF TO SIMON: Xx. Xxxx Xxxxx
00000 Xxxxxxx Xxxxx
Xxxxxx Xxxxx, Xxxxxxxxxx 00000-0000
Phone: 818/000-0000
IF TO BUYER: Litigation Resources of America-California, Inc.
650 First City Tower, 0000 Xxxxxx
Xxxxxxx, Xxxxx 00000
Phone: 713/000-0000
Fax: 713/000-0000
IF TO PARENT: Litigation Resources of America, Inc.
650 First City Tower, 0000 Xxxxxx
Xxxxxxx, Xxxxx 00000
Phone: 713/000-0000
Fax: 713/000-0000
Copy to: J. Xxxxxxxx Xxxxx
Xxxxx, Xxxxx & Xxxxxx Incorporated
Nine Xxxxxxxx Xxxxx, Xxxxx 0000
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Xxxxxxx, Xxxxx 00000
Phone: 713/000-0000
Fax: (000) 000-0000
Any addressee at any time by furnishing notice to the other addressees in the
manner described above may designate additional or different addresses for
subsequent notices or communications.
9.4 SEVERABILITY. The invalidity or unenforceability of any provision of
this Agreement shall not invalidate or affect the enforceability of any other
provision of this Agreement.
9.5 ENTIRE AGREEMENT; BINDING EFFECT. This Agreement and any Ancillary
Agreements set forth the entire agreement among the Parties with respect to the
subject matter hereof. This Agreement shall be binding upon and shall inure to
the benefit of the Parties and their respective successors and assigns.
9.6 WAIVER. No delay in the exercise of any right under this Agreement
shall waive such rights. Any waiver, to be enforceable, must be in writing.
9.7 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS.
9.8 ASSIGNMENT. The Seller shall not assign this Agreement or any interest
herein .
9.9 HEADINGS. Headings in this Agreement are for convenience only and
shall not affect the interpretation of this Agreement.
9.10 SCHEDULES AND EXHIBITS. All Schedules and Exhibits attached to this
Agreement or to be delivered by the Seller, upon review and approval by the
Buyer, are and shall be hereby incorporated in and made a part of this
Agreement. All Schedules to this Agreement must be delivered no later than four
(4) days prior to Closing, in order to provide the Buyer ample time to review
and evaluate the items described therein and disclosed thereby. Although the
Schedules remain subject to the review and approval of the Buyer, no such review
or approval shall constitute a waiver by the Buyer of any breach or default
caused by the inaccuracy or incompleteness of any Schedule, the accuracy and
completeness of the Schedules being the sole responsibility of the Seller.
9.11 RIGHTS AND LIABILITIES OF PARTIES. Nothing in this Agreement, whether
express or implied, is intended to confer any rights or remedies under or by
reason of this Agreement on any persons other than the Parties and their
respective successors and assigns, nor is anything in this Agreement intended to
relieve or discharge the obligation or liability of any third persons to any
Party to this Agreement, nor shall any provision give any third person any right
of subrogation or action over against any Party to this Agreement.
9.12 SURVIVAL. Subject to Section 7.2, this Agreement, including but not
limited to all covenants, warranties, representations and indemnities contained
herein, shall survive the Closing,
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and the Xxxx of Sale and all other documents, instruments or agreements relating
to the Assets and the transactions contemplated herein shall not be deemed
merged therein.
9.13 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall have the force and effect of an original, and
all of which shall constitute one and the same agreement.
9.14 ARBITRATION. If a dispute arises out of or relates to this Agreement,
or the breach thereof, and if such dispute cannot be settled through
negotiation, the Parties agree first to try in good faith to settle the dispute
by mediation under the Commercial Mediation Rules of the American Arbitration
Association, before resorting to arbitration, litigation, or some other dispute
resolution procedure as required by this Section 9.14. Failing an adequate
resolution by mediation, any controversy or claim arising out of or relating to
this Agreement or the transactions contemplated hereby, including any
controversy or claim arising out of or relating to the Parties' decision to
enter into this Agreement, shall be settled by binding arbitration. There shall
be one arbitrator to be mutually agreed upon by the Parties involved in the
controversy and to be selected from the National Panel of Commercial Arbitrators
(or successor panel, if any). If within 45 days after service of the demand for
arbitration the Parties are unable to agree upon such an arbitrator who is
willing to serve, then an arbitrator shall be appointed by the American
Arbitration Association in accordance with its rules. Except as specifically
provided in this Section 9.14, the arbitration shall be conducted in accordance
with the Commercial Arbitration Rules of the American Arbitration Association.
The arbitrator shall not render an award of punitive damages. Any arbitration
hereunder shall be held in Los Angeles, California. Expenses related to the
arbitration, including counsel fees, shall be borne by the Party incurring such
expenses except to the extent otherwise provided in Section 9.15 herein. The
fees of the arbitrator and of the American Arbitration Association, if any,
shall be divided equally among the Parties involved in the controversy.
Judgment upon the award rendered by the arbitrator (which may, if deemed
appropriate by the arbitrator, include equitable or mandatory relief with
respect to performance of obligations hereunder) may be entered in any court of
competent jurisdiction.
9.15 ATTORNEYS' FEES. If any litigation is instituted to enforce or
interpret the provisions of this Agreement or the transactions described herein,
the prevailing Party in such action shall be entitled to recover its reasonable
attorneys' fees from the other Party hereto.
9.16 DRAFTING. All Parties hereto acknowledge that each Party was actively
involved in the negotiation and drafting of this Agreement and that no law or
rule of construction shall be raised or used in which the provisions of this
Agreement shall be construed in favor or against any Party hereto because one is
deemed to be the author thereof.
IN WITNESS WHEREOF, the undersigned have executed and delivered this
Agreement in multiple counterparts effective as of the date first written above.
BUYER:
------
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LITIGATION RESOURCES OF AMERICA-CALIFORNIA, INC., a
California corporation
By: Xxxxxxx X. Xxxxxx
---------------------------------------------------
Xxxxxxx X. Xxxxxx, Chairman and
Chief Executive Officer
SELLER:
-------
LEGAL ENTERPRISE, INC.,
a California corporation
By: Xxxx X. Xxxxxxxx
---------------------------------------------------
Name: Xxxx X. Xxxxxxxx
--------------------------------------------
Title: President, CFO
--------------------------------------------
PARENT:
LITIGATION RESOURCES OF AMERICA, INC.,
a Texas corporation
By: Xxxxxxx X. Xxxxxx
---------------------------------------------------
Xxxxxxx X. Xxxxxx,
President & Chief Executive Officer
XXXXXXXX:
---------
Xxxx X. Xxxxxxxx
-------------------------------------------------------
XXXX X. XXXXXXXX, Individually
SIMON:
------
Xxxx Xxxxx
-------------------------------------------------------
XXXX XXXXX, Individually
Schedules:
----------
2.1(a) Equipment
2.1(b) Contracts
2.1(c) Books and Records
2.1(e) Intellectual Property
2.1(g) General Intangibles
2.2 Excluded Assets
2.7 Allocation of Purchase Price
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3.1 Encumbrances on Assets
3.7 Employment Contracts
3.9 Litigation
3.10 Breaches or Violations
3.12 Personnel
3.15 Employee Benefits
3.16(a) Certain Changes or Events
3.16(b) Certain Commitments
3.17 Consents and Approvals
3.21 Liens
3.22 Customers
3.23 Insurance Policies
3.24 Interest in Customers, Suppliers and Competitors
3.26 Organization
3.30 Severance Payments
3.34 Operations of Seller
4.5 Consents
Exhibits:
---------
A-1 Note 1
A-2 Note 2
B Xxxxxxxx Employment Agreement
C Xxxx of Sale
D Contingent Stock Pledge Agreement
Other Agreements:
-----------------
Registration Rights Agreement
Pecks Subordination Agreement(s)
Texas Commerce Bank Subordination Agreement(s)
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