AGREEMENT
This Agreement (the "Agreement") is entered into as of the 12th day of
September, 1997, by and among Dispatch Management Services Corp., a Delaware
corporation (the "Company"), Profall, Inc. d/b/a "1-800-COURIER-LAX" and
"EXPRESS-IT-LAX", a California corporation which has elected S Corporation
treatment for federal income tax purposes (the "Business Contribution Member"),
Xxxxxx Xxxxxxxx, Xxxxxx Xxxxxxxx, Xxxxx Xxxxxxx and Xxxxxxx Xxxxxxx
(collectively, the "Shareholders") and [DMS Corp. Subsidiary Number ___] a
Delaware corporation to-be-formed (the "Specific Company Subsidiary"). Unless
defined herein, all capitalized terms used in this Agreement shall have the
meaning given them in the Operating Agreement of Dispatch Management Services
LLC ("DMS") dated December 1, 1996 by and between the Members of DMS, as amended
(the "Operating Agreement").
W I T N E S S E T H
WHEREAS, the Business Contribution Member is in the business of providing
point-to-point urgent messenger services (such business, and any other lines of
business related thereto, the "Business");
WHEREAS, the Shareholders own all of the issued and outstanding capital
stock of the Business Contribution Member;
WHEREAS, subject to the conduct of the due diligence examination to begin
following the execution of this Agreement, and further subject to the terms and
conditions set forth herein, the Business Contribution Member desires to sell to
the Company all the Business Contribution Member's right, title and interest in
and to the Assets (as defined in Section 1.2(a) below), and have the Company
assume the Assumed Liabilities (as defined in Section 1.2(b) below) for the
Purchase Price (as defined in Section 1.4 below);
WHEREAS, upon the satisfactory completion of the due diligence
examination, the delivery of the financial statements, schedules, disclosure
documents, questionnaires and other information required by this Agreement, and
approval of the same by the Company, the parties hereto will close in escrow
pursuant to the terms and conditions set forth herein;
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WHEREAS, upon satisfaction of the conditions set forth herein, the escrow
will be terminated, and the sale of the Assets and assumption of the Assumed
Liabilities will be consummated;
WHEREAS, at Closing (as hereinafter defined) under this Agreement, the
Company will contribute to the Specific Company Subsidiary all of the Company's
right, title and interest in and to the Assets and have the Specific Company
Subsidiary assume the Assumed Liabilities, in exchange for 100% of the equity
ownership in the Specific Company Subsidiary;
WHEREAS, the Specific Company Subsidiary intends to enter into an
employment agreement with Xxxxx Xxxxxxxx (the "Back-Office Employee"), in the
form attached hereto as Exhibit A, as well as non-competition agreements with
each of the Shareholders of the Business Contribution Member and the Back-Office
Employee in the form attached hereto as Exhibit B (such employment agreement and
non-competition agreements, together with all other agreements which are entered
into by the parties hereto pursuant to this Agreement or in connection with any
of the transactions contemplated hereby, the "Related Agreements");
WHEREAS, the parties intend that at the Closing the Business Contribution
Member will change its corporate name and/or trade name, as necessary, so that
the Specific Company Subsidiary may trade under the trade name previously used
for the Business (which trade name is specifically acquired by the Specific
Company Subsidiary hereunder);
WHEREAS, the parties hereto desire to make certain representations,
warranties, covenants and agreements in connection with this Agreement.
NOW, THEREFORE, in consideration of the foregoing, the representations,
warranties, covenants and agreements herein contained, and for the sum of $10.00
paid by the Company to the Business Contribution Member and each Shareholder,
the receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
1. Closing in Escrow
1.1. Overview. Upon execution of this Agreement, the Shareholders
and the Business Contribution Member shall be obliged to use their reasonable
best efforts to deliver to the Company, within thirty (30) days after execution
of this Agreement: (i) the audited financial
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statements required pursuant to Section 1.4 below and (ii) the agreements
required pursuant to Section 3.1 below.
After approval of the same by the Company, and prior to filing the
registration statement with the Securities and Exchange Commission relating to
the initial public offering of common stock, par value $.01 per share, of the
Company (the "Initial Public Offering"), the Company will deliver to the
Business Contribution Member and the Shareholders a disclosure document,
together with a notice (the "Notice") specifying the date by which the Business
Contribution Member and the Shareholders must execute and deliver satisfactory
representation letters in order to consummate the sale of the Assets and
assumption of the Assumed Liabilities pursuant to the terms of this Agreement.
Upon timely delivery from the Business Contribution Member and all
of the Shareholders of representation letters satisfactory to the Company, the
parties will close in escrow (the "Closing in Escrow") pursuant to the terms and
conditions of this Agreement. Such Closing in Escrow shall take place at the
offices of Silver, Xxxxxxxx & Xxxx, L.L.P., 0000 Xxx Xxxx Xxxxxx, X.X., 0xx
Xxxxx, Xxxxxxxxxx, X.X. 00000 (or such other place as is mutually agreed upon by
the parties) within thirty (30) days (or such shorter period as is specified in
the Notice) after timely delivery of satisfactory representation letters from
the Business Contribution Member and the Shareholders.
In the event that the Business Contribution Member and/or one or
more of the Shareholders do not timely deliver satisfactory representation
letters (as determined in the sole discretion of the Company), this Agreement
will be of no further force or effect, except for any and all obligations under
Sections 3.2 (confidentiality), 1.4 (reimbursement of audit expenses) and 8.2
(effect of termination under Section 8.1), which obligations will survive
termination of this Agreement.
1.2 Definitions.
(a) Definition of Assets. For purposes of this Agreement, the
term "Assets" shall mean and include the following assets of the Business
Contribution Member:
(i) Those agreed upon assets (including radio channels)
set forth on Exhibit C attached hereto;
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(ii) All rights, if any, to the trade and/or brand names
"1-800-COURIER-LAX", and "EXPRESS-IT-LAX", logos, and other Intellectual
Property as defined in Section 2.11.(d) hereinbelow, customer lists, goodwill
and other intangible assets; and
(iii) All rights, claims, and interests of the Business
Contribution Member, as of the Closing Date, under and with respect to agreed
upon contracts (the "Contracts"), as set forth on Exhibit D attached hereto.
To the extent that the assignment of the rights, claims and interests of
the Business Contribution Member under any of the Contracts requires the consent
of a third party (as set forth in Exhibit E hereto), and such third party's
consent to assignment is not secured prior to Closing hereunder, the parties
hereto shall use their best efforts to place the Specific Company Subsidiary in
a position to receive the benefits of the Business Contribution Member's rights,
claims and interest in such Contracts during the term of such Contracts. The
parties' efforts to this end shall be made in a lawful and commercially
reasonable manner.
(b) Definition of Assumed Liabilities. For purposes of this
Agreement, the term "Assumed Liabilities" shall mean and include:
(i) Those outstanding liabilities and obligations of the
Business Contribution Member (other than contractual obligations under the
Contracts provided for in paragraph (ii) below), and only those liabilities and
obligations, which are set forth on Exhibit F attached hereto; and
(ii) Those liabilities and obligations of the Business
Contribution Member arising after the Closing Date under the express provisions
of the Contracts. For purposes of clarification, the Business Contribution
Member will be responsible for all taxes relating to the Business and/or the
Assets and/or the Assumed Liabilities payable or accrued for all periods up to
and including the Closing Date (whether or not such taxes were assessed before
or after the Closing Date).
1.3. Closing in Escrow Deliveries and Other Actions.
(a) Deliveries at Closing in Escrow. In addition to the
execution and delivery of documents as and when otherwise required by the terms
of this Agreement, at the Closing in Escrow the Company and the Business
Contribution Member and/or the Shareholders shall, as
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appropriate, enter into, execute and deliver to the law firm of Silver, Xxxxxxxx
& Taff, LLP, as escrow agent: (i) a xxxx of sale, (ii) an instrument of
assignment and assumption (the form and substance of which shall be reasonably
acceptable to the Company and Business Contribution Member), and (iii) any other
instruments of conveyance or transfer which may be necessary in the sole
discretion of the Company, including, without limitation, any instruments of
assignment in connection with the Intellectual Property, if any, and the
Contracts, each in form and substance reasonably acceptable to the Company,
pursuant to which the Business Contribution Member and/or the Shareholders shall
convey, assign, transfer and deliver to the Company all right, title and
interest in, to and under the Assets, free and clear of any and all Encumbrances
(as defined in Section 2.3(a) below), and the Company shall assume the Assumed
Liabilities from the Business Contribution Member. At the Closing in Escrow, the
Business Contribution Member shall also cause to be delivered the opinion of its
counsel as to such matters as counsel to the Company may reasonably require,
including but not limited to such counsel's opinion that: the Business
Contribution Member is in good standing; the Business Contribution Member is
authorized to conduct its business in each jurisdiction in which it is doing
business; the Business Contribution Member and the Shareholders have full power
to enter into and perform their respective obligations under this Agreement, as
well the Related Agreements to which they are a party; this Agreement, and the
Related Agreements to which the Business Contribution Member and/or the
Shareholders are a party, constitute legal, valid and binding obligations of the
Business Contribution Member and the Shareholders, respectively, enforceable in
accordance with their respective terms (except as enforcement may be limited by
bankruptcy, insolvency and other similar laws affecting the enforcement of
creditor's rights, and principles of equity); and, to the knowledge of counsel,
neither the Business Contribution Member nor any of the Shareholders is
threatened with or affected by any actions, proceedings or investigations
wherein an unfavorable decision, ruling or finding could have a materially
adverse effect on the financial condition or operation of the Business and/or
the Assets, or could prevent, enjoin or otherwise affect the transactions
contemplated by this Agreement. For purposes of rendering the opinion, the
Company has agreed to allow counsel to assume that Maryland law or the law
governing any of the Related Agreements, is identical to California law. In
addition, the Company shall deliver
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to Silver Xxxxxxxx & Taff, L.L.P. all of the foregoing documents that are
applicable and the share certificates representing the Company Stock to be
issued to the Business Contribution Member.
(b) Further Actions. On and after the Closing in Escrow, the
parties hereto shall enter into, execute and deliver such other and further
agreements, documents and instruments, as any of them may reasonably request,
for the purpose of effectuating the transactions contemplated by this
Agreement..
(c) Consummation of Sale. Upon Closing in Escrow, subject to
the terms and conditions of this Agreement, the Company will be obligated to
purchase the Assets, and assume the Assumed Liabilities, and the Business
Contribution Member will be obliged to sell the Assets, subject to the Assumed
Liabilities, at the purchase price specified in Section 1.4 below, on the
Closing Date specified in Section 1.5 below.
1.4. Purchase Price. The purchase price for the Assets (the
"Purchase Price") shall be (i) $1,210,560; plus (ii) $97,925, the fair market
value of the tangible assets of the Corporation's "1-800-COURIER-LAX" operations
(the "Tangible Asset Value") as set forth on Schedule 1.4. The Purchase Price
shall be subject to adjustment (if any) as a result of a reduction in the
Maximum Earn-Out (as defined in this Section 1.4 below).
The parties hereto hereby agree to allocate the Purchase Price to
the Assets in accordance with the manner set forth on Schedule 1.4 attached
hereto and in accordance with the applicable provisions of Section 1060 of the
Code (the "Price Allocation"). Accordingly, each party to this Agreement shall
adopt and utilize such Price Allocation for purposes of all tax returns filed by
them and shall not voluntarily take any position inconsistent therewith in
connection with any examination of any tax return, any refund claim, any
litigation proceeding or otherwise. Each of the Company and the Business
Contribution Member shall file on a timely basis a Form 8594 in accordance with
the requirements of Section 1060 of the Code and the provisions of this Section
1.4. In the event that the Price Allocation is disputed by any taxing authority,
the party receiving notice of the dispute shall promptly notify the other
parties hereto of such dispute and the parties hereto shall consult with each
other concerning resolution of the dispute.
Unless the Company gives the Shareholders and the Business
Contribution Member written notice to the contrary, the Shareholders and the
Business Contribution Member shall use their
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reasonable best efforts to deliver to the Company, within thirty (30) days after
execution of this Agreement: (i) audited financial statements of the Business,
including balance sheets dated as of December 31, 1994, 1995 and 1996, and
income statements and cash flow statements for each of the three twelve month
periods ended on such dates; (ii) unaudited financial statements of the
Business, including a balance sheet dated as of June 30, 1996, and an income
statement and cash flow statement for the twelve month period ended on June 30,
1996: and (iii) unaudited, reviewed financial statements of the Business,
including a balance sheet dated as of June 30, 1997 and an income statement and
a cash flow statement for the six month period ended June 30, 1997. In the event
that the closing of the Initial Public Offering has not occurred on or before
November 12, 1997, but does occur on or before December 12, 1997, then in that
event, in lieu of the unaudited, reviewed financial statements of the Business
for the six month period ended June 30, 1997, the Shareholders and the Business
Contribution Member shall use their reasonable best efforts to deliver to the
Company, within thirty days after written request from the Company: (i) an
updated set of audited financial statements of the Business, including a balance
sheet dated as of June 30, 1997, and income statements and cash flow statements
for the six month period ended June 30, 1997; (ii) unaudited financial
statements for the Business, including a balance sheet dated as of September 30,
1996, and an income statement and cash flow statement for the 12 month period
ended on September 30, 1996; and (iii) unaudited, reviewed financial statements
of the Business, including a balance sheet dated as of September 30, 1997 and
income statements and cash flow statements for the three month period ended
September 30, 1997. In the event that the closing of the Initial Public Offering
has not occurred on or before December 12, 1997, then upon written request from
the Company given on or before March 1, 1998, the Shareholders and the Business
Contribution Member shall use their reasonable best efforts to deliver to the
Company, within 30 days after written request from the Company, such additional
audited and/or unaudited, reviewed financial statements of the Business as the
Company may reasonably request.
All of the financial statements referred to in this Section 1.4
shall be prepared (or reviewed, as the case may be) by Price Waterhouse LLP. The
cost of providing all of the financial statements required by this Section 1.4,
within the prescribed time limits, shall be the sole responsibility of the
Business Contribution Member, provided that the Company will advance such
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costs on behalf of the Business Contribution Member. So long as all conditions
to Closing are satisfied, including, but not limited to the closing of the
Initial Public Offering, only in the event that the Business Contribution Member
and/or one or more of the Shareholders do not deliver satisfactory shareholder
representation letters by the deadline specified in the Notice and complete the
Closing in Escrow, the Business Contribution Member and the Shareholders shall
be jointly and severally responsible for immediately refunding to the Company
any such advanced costs (up to the amount of the actual audit costs incurred not
to exceed $20,000); in the event that all such representation letters are
satisfactory and are timely received, and the Closing in Escrow is completed,
the Business Contribution Member and the Shareholders shall be relieved of their
obligation to refund to the Company such amount of advanced costs.
The Company shall pay seventy percent (70%) of the Purchase Price in
cash, which is subject to reduction in accordance with the terms of the next
paragraph, and thirty percent (30%) of the Purchase Price in (restricted) stock
of the Company (the "Company Stock"), at the Closing (the number of shares of
Company Stock to be issued to the Business Contribution Member at the Closing to
satisfy the stock portion of the Purchase Price shall be determined by dividing
$392,546 by the per share price of Company Stock to the public in the Initial
Public Offering). The Business Contribution Member and the Shareholders
acknowledge that the sale of the Company Stock will be restricted for a period
of time by virtue of a "lock-up" agreement which may be imposed by the Company
(the "Lock-up Agreement"), and the Business Contribution Member and the
Shareholders shall execute the Lock-Up Agreement, as may be required by the
Company, by which the sale of the Company Stock is restricted (perhaps
prohibited) for a period of two (2) years from the date of the closing of the
Initial Public Offering.
Three hundred ninety-two thousand, five hundred forty-six dollars
($392,546) of the cash portion of the Purchase Price (the "Maximum Earn-Out")
shall be earned by the Business Contribution Member ratably over the two years
beginning January 1, 1998 and ending December 31, 1999 provided that the
Specific Company Subsidiary or any affiliates of it or the Company or the
Business Contribution Member achieves gross revenue in Los Angeles or Orange
Counties from business which utilizes the brand names "1-800-COURIER",
"EXPRESS-IT" or "1-800-DELIVER" ("Gross Revenue") of at least $1,815,840 each
such year. In the event that the Specific Company
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Subsidiary or any affiliates of it or the Company or the Business Contribution
Member fails to achieve such standard, the cash portion of the Purchase Price
shall be reduced by: (i) one half (1/2) of the Maximum Earn-Out, multiplied by:
(ii) a fraction, the numerator of which is the difference between the actual
revenue achieved during such calendar year and $1,815,840, and the denominator
of which is $1,815,840. The Maximum Earn-Out, less any reductions as set forth
in this paragraph is hereinafter referred to as the "Earn-Out". The Earn-Out
shall bear interest at the rate of 7% per annum commencing as of the Closing
Date (i.e., once the Earn-Out is determined, the Shareholders will be due such
amount plus interest at the rate of 7% per annum on such amount, accrued from
the Closing Date until the date of payment of the Earn-Out to the Shareholders).
The Earn-Out shall be paid to the Business Contribution Member promptly
following calculation of the Gross Revenue for the quarter ending December 31,
1999 but no later than March 31, 2000. The Company covenants and agrees to
maintain sufficient cash, or availability of cash (e.g., by way of a line of
credit) in order to fund the Earn-Out.
At the request of the Business Contribution Member made to the Company in
writing not later than the Closing in Escrow, the Company shall concurrently
with the Closing make a loan to the Business Contribution Member in an amount
equal to up to 30% of the Purchase Price. Said loan by the Company to the
Business Contribution Member (the "Business Contribution Member Loan") shall
bear interest at a rate of seven percent (7%) per annum, and shall be secured by
all of the Company Stock paid as part of the Purchase Price at Closing. The
collateral security agreement evidencing the collateralization of the Business
Contribution Member Loan with the Company Stock and the Earn-Out shall be in the
form of Exhibit G hereto. The Business Contribution Member shall have the right
to prepay the Business Contribution Member Loan (plus accrued interest) at any
time without penalty and shall have the right to direct the Company to offset
the balance due under the Business Contribution Member Loan (plus accrued
interest) against the Earn-Out as earned each quarter. The Business Contribution
Member Loan shall mature as of the date that the Earn-Out is payable. In the
event that the Business Contribution Member Loan is not repaid in full upon
maturity, the Company shall enjoy all rights of a secured party under the
Uniform Commercial Code then in effect in the State of Maryland, provided that
the Company's only recourse shall be first against the remaining Earn-Out and
then against the Company Stock it holds as collateral, and there shall not
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be any recourse against the Business Contribution Member or the Shareholders
individually. For purposes of exercising its rights as a secured creditor, the
value of the Company Stock shall be the market price (without a discount of any
kind) on the date that the Earn-Out is payable.
1.5. Time and Place of Closing. Unless this Agreement shall have
been terminated and the transactions herein contemplated shall have been
abandoned pursuant to Section 8.1., and subject to the satisfaction or waiver of
the conditions set forth in Section 7, the purchase and sale of the Assets,
subject to the Assumed Liabilities, pursuant to this Agreement (the "Closing")
shall take place at the offices of Silver, Xxxxxxxx & Xxxx, L.L.P., 0000 Xxx
Xxxx Xxxxxx, X.X., Xxxxx 000X, Xxxxxxxxxx, X.X. 00000, contemporaneously with
the closing of the Initial Public Offering unless the closing of the Initial
Public Offering does not occur by March 31, 1998, in which case this Agreement
shall be rendered null and void, or unless another date, time or place is agreed
to in writing by the parties hereto (the day on which the Closing takes place
being the "Closing Date").
At the Closing: (i) Silver, Xxxxxxxx and Taff, L.L.P. shall deliver
to the Company the xxxx of sale, instruments of assignment and assumption,
transfer documents, and other documents and materials theretofore held in escrow
from the Closing in Escrow; (ii) the Business Contribution Member and the
Shareholders shall deliver to the Company updated certificates, dated the
Closing Date, required pursuant to Sections 7.2(a) and 7.2(b) below, and an
updated opinion of counsel as referred to in Section 1.3(a) above; and (iii) the
Company shall deliver the Purchase Price to the Business Contribution Member
(less the Maximum Earn-Out, which shall be payable to the Business Contribution
Member pursuant to the terms of Section 1.4 above, and with the Company Stock
collateralized against the Business Contribution Member Loan being delivered to
the Company as appropriate). At Closing, the Company shall deliver or cause
Silver Xxxxxxxx & Taff, L.L.P. to deliver the foregoing documents that are
applicable, the cash portion of the Purchase Price and the proceeds of the Loan.
At Closing, Company, Business Contribution Member, Shareholders and Specific
Company Subsidiary shall also take all additional steps as may be necessary or
appropriate to deliver the Assets to the Specific Company Subsidiary, have the
Specific Company Subsidiary assume the Assumed Liabilities, and put the Specific
Company Subsidiary in physical possession and operating control of the Business
and all of the Assets. Simultaneously with the Closing, to the extent necessary,
the cash portion of the Purchase Price shall be used to pay in full any
outstanding loans
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of the Business Contribution Member that are secured by the Assets. Appropriate
lien releases will be obtained from the relevant lender.
2. Representations, Warranties and Covenants of the Business Contribution
Member and the Shareholders.
Except as otherwise set forth in any schedule or exhibit provided
simultaneously herewith or prior to the Closing. The Business Contribution
Member and the Shareholders hereby jointly and severally represent, warrant and
covenant to the Company as follows (it being understood and agreed that any item
disclosed in any schedule or exhibit in reference to a particular section hereof
will be deemed to be disclosed for all purposes of this Agreement):
2.1. Organization, Standing and Power. The Business Contribution
Member is an "S" Corporation duly organized, validly existing and in good
standing under the laws of the State of California, and has all requisite
corporate power and authority to own, lease and operate its properties
(including, without limitation, the Assets) and to carry on its business as now
being conducted (including, without limitation, the Business). The Business
Contribution Member is duly qualified and in good standing to conduct business
in each jurisdiction in which the business it is conducting (including, without
limitation, the Business), or the operation, ownership or leasing of its
properties (including, without limitation, the Assets), makes such qualification
necessary.
2.2. Authority and Enforceability.
(a) Matters Relating to the Business Contribution Member. The
Business Contribution Member has all requisite corporate power and authority to
execute and deliver this Agreement and each of the Related Agreements to which
it is a party and to perform fully its obligations hereunder and thereunder. The
execution and delivery of this Agreement, the Related Agreements and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action on the part of the Business
Contribution Member. This Agreement and each of the Related Agreements to which
the Business Contribution Member is a party has been duly executed and delivered
by the Business Contribution Member, and this Agreement and each of the Related
Agreements to which the Business Contribution Member is a party constitute the
legal, valid and binding obligations of the Business Contribution Member,
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enforceable against the Business Contribution Member in accordance with their
respective terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights and remedies generally and subject, as to enforceability, to
general principles of equity (regardless of whether enforceability is considered
in a proceeding at law or in equity).
(b) Matters Relating to the Shareholders. The Shareholders
have all requisite legal right, power and authority to enter into this Agreement
and each of the Related Agreements to which they are a party and to agree to the
transactions contemplated hereby and thereby and to perform all of their
respective obligations hereunder and thereunder. This Agreement and each of the
Related Agreements to which any of the Shareholders are a party constitute the
legal, valid and binding obligations of the Shareholders, enforceable against
the Shareholders in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and remedies
generally and subject, as to enforceability, to general principles of equity
(regardless of whether enforceability is considered in a proceeding at law or in
equity).
2.3. Title to Assets; Condition.
(a) Except as provided on Schedule 2.3, the Business
Contribution Member owns beneficially and of record, and has good and marketable
title to, the Assets, free and clear of any Encumbrances. For purposes of this
Agreement, the term "Encumbrances" shall mean restrictions, conditions,
covenants, liens, easements, charges, encroachments or any other matter
affecting fee simple title (other than the Assumed Liabilities).
(b) Upon consummation of the transactions contemplated at the
Closing, the Company will acquire good and marketable title to the Assets, free
and clear of any Encumbrances. All tangible assets conveyed hereunder are in
good working condition and repair, except for reasonable wear and tear.
2.4. Sufficiency of Assets. The Assets include substantially all the
assets and properties used or employed by the Business Contribution Member in
the Business as presently conducted. Immediately after giving effect to the
transfer of the Assets at Closing by the Business Contribution Member, and the
consummation of the other transactions contemplated pursuant to this
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Agreement to be effected at the Closing, the Company will (i) have all right,
title, and interest in and to, or will have a valid right to use, without
liability to third party(ies), the Assets; and (ii) except as provided on
Schedule 2.4, have all assets, rights, Back-Office Employees, subcontractors and
other persons and items which are reasonably necessary to carry on the business
and operations of the Business after the Closing Date in substantially the same
manner as presently conducted by the Business Contribution Member.
2.5. No Violations Resulting From Transactions. The execution and
delivery by the Business Contribution Member and the Shareholders of this
Agreement and each of the Related Agreements to which they are, respectively, a
party, and the consummation of the transactions contemplated hereby and thereby
by each of the Business Contribution Member and the Shareholders will not (a)
conflict with or violate any provision of the articles or certificate of
incorporation or by-laws of the Business Contribution Member, (b) except as set
forth in Exhibit E, require any consent, waiver, approval, authorization or
permit of, or filing with or notification to, any third party, (c) except as set
forth in Exhibit E, result in or constitute a default, or require any consent or
approval of or notice to any person or entity, or result in the creation of an
Encumbrance, under or pursuant to (i) any of the Contracts, or (ii) any other
material agreements to which the Business Contribution Member and/or any of the
Shareholders are a party, or (d) violate any law applicable to the Business
Contribution Member or any of the Shareholders or by which any of the Assets is
bound.
2.6. Compliance with Laws.
(a) The Business Contribution Member is, and at all times
during the past three years has been, in material compliance with all laws
applicable to the Business Contribution Member or to the conduct of the business
or operations of the Business Contribution Member or the Business or the use of
its properties (including any leased properties) and assets (including, without
limitation, the Assets); and
(b) The Business Contribution Member has not received, and
does not know of the issuance or threatened issuance by any governmental entity,
of any notices of violation or alleged violation of any law applicable to the
Business Contribution Member or the Business. The Business Contribution Member
has provided the Company with true and complete copies of (i) all injunctions,
judgments, orders or consent or similar decrees or agreements of any
governmental entity
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to which the Business Contribution Member or the Business is currently subject
(or which the Business Contribution Member or the Business was subject to during
the previous three years) or which are otherwise applicable to the Business
Contribution Member or the Assets or to the conduct of the Business, and (ii)
all correspondence from the date hereof with respect to any of the matters
referred to in clause (b) or clause (i) of this Section 2.6. Neither the
Business Contribution Member nor any of the Shareholders is aware of any
proposed legislation or law which is reasonably expected to be enacted and
which, if so enacted, could reasonably be expected to have a material adverse
effect on either the Business or the Business Contribution Member.
2.7. Litigation. There is no action, suit, claim, investigation or
proceeding, whether at law or in equity (each, a "Legal Proceeding"), pending
or, to the knowledge of the Business Contribution Member and/or any of the
Shareholders, threatened that questions the validity of this Agreement or the
Related Agreements or any action taken or to be taken by the Business
Contribution Member or any of the Shareholders in connection with the
consummation of the transactions contemplated hereby or thereby or which seeks
to prohibit, enjoin or otherwise challenge any of the transactions contemplated
hereby or thereby. Exhibit H sets forth an accurate and complete list, and a
brief description (setting forth the names of the parties involved, the court or
other governmental or mediating entity involved, the relief sought and the
substantive allegations and the status thereof), of each Legal Proceeding
pending or, to the knowledge of the Business Contribution Member and/or any of
the Shareholders, threatened against or affecting the Business Contribution
Member, the Business or any of the Assets. To the knowledge of the Business
Contribution Member and/or any of the Shareholders, no event has occurred and no
circumstance, matter or set of facts exist which would constitute a valid basis
for the assertion by any third party of any claim or Legal Proceeding, other
than those listed on Exhibit H. Except as set forth in Exhibit H, there is no
outstanding or, to the knowledge of the Business Contribution Member and/or any
of the Shareholders, threatened judgment, injunction, order or consent or
similar decree or agreement (including, without limitation, any consent or
similar decree or agreement with any governmental entity) against, affecting or
naming the Business Contribution Member, the Business or any of the Assets.
2.8. Financial Advisors.
14
(a) Except as set forth on Exhibit I attached hereto, no
person or entity has acted directly or indirectly as a broker, finder or
financial advisor for or to the Business Contribution Member and/or any of the
Shareholders in connection with the negotiations relating to or the transactions
contemplated by this Agreement or the Related Agreements; and
(b) Except as set forth on Exhibit I attached hereto, no
person or entity is entitled to any fee or commission or like payment, or
expense reimbursement, in respect thereof based in any way on agreements,
arrangements or understandings made by or on behalf of the Business Contribution
Member and/or any of the Shareholders. Such fees, commissions, like payments or
expense reimbursements as are described on Exhibit I attached hereto shall
remain liabilities and expenses of the Business Contribution Member and/or the
Shareholders exclusively, and are specifically excluded from the Assumed
Liabilities contemplated by this Agreement.
2.9. Financial Statements; Receivables. Attached hereto as Exhibit J
are true, correct and complete copies of the most recent unaudited financial
statements for the Business which, together with the financial statements
(including the notes and exhibits thereto), to be delivered to the Company
pursuant to Section 1.4 herein (the "Financial Statements") were and will be
prepared in accordance with the books and records of the Business, are and will
be complete and correct in all material respects, have and will have been
prepared in accordance with U.S. generally accepted accounting principles
("GAAP"), applied consistently with the past practices of the Business, except
where otherwise specifically noted therein, and present and will present fairly
in all material respects the financial position, results of operations and
changes in financial position or cash flows, whichever is applicable, of the
Business as at the dates and for the periods indicated (subject, in the case of
the unaudited financial statements, to normal year-end audit adjustments).
Without limiting the foregoing, no undisclosed liabilities or obligations of any
nature (whether known or unknown, or absolute, accrued, contingent or otherwise)
shall exist as at Closing in Escrow or the Closing not reflected in the
Business's most recently dated balance sheet supplied to the Company, [other
than those incurred in the ordinary course of business consistent with past
practice]. The Business Contribution Member has paid all federal, state and
local income, profits, franchises, sales, use, occupation, property, excise and
payroll taxes, and all license fees and other charges imposed upon it, and has
timely filed all tax returns and related documents required to be filed with any
15
governmental authority. There are no outstanding or proposed statements of
deficiency in tax payments to any federal, state, local or foreign government
with respect to the Business Contribution Member for any tax period. As of the
dates such Financial Statements were and will be prepared, all accounts
receivable reflected on the Financial Statements (i) have and will have arisen
from bona fide transactions in the ordinary course of the Business Contribution
Member's business, consistent with its past practices, [and (ii) to the best of
Business Contribution Member's knowledge, are good and collectible at the
aggregate recorded amounts thereof, net of any applicable reserves for returns
or doubtful accounts which are reflected in such Financial Statements
(such reserves, the "Reserves"); such Reserves are adequate and reasonable and
were established in accordance with GAAP.]
2.10. Absence of Certain Developments.
(a) There has been no event, condition or state of facts of
any character that has had or is reasonably likely to have a material adverse
effect on the Assets or the Business.
(b) The Business Contribution Member has not entered into any
transaction or contract, or conducted its business, other than in the ordinary
course consistent with past practice.
2.11. Intellectual Property.
(a) List of Intellectual Property; Sufficiency. Exhibit K sets
forth a list of all Intellectual Property (as defined in Section 2.11.(d) herein
below) which is owned by the Business Contribution Member, licensed by the
Business Contribution Member, licensed to the Business Contribution Member, or
otherwise used or able to be used in the Business (other than commonly-used
computer software which is generally available to the public and the use rights
to which were legally acquired by the Business Contribution Member either for
free or through established retail facilities) and indicates, with respect to
each item of Intellectual Property listed thereon, the owner thereof and, if
applicable, the name of the licensor and licensee thereof and the terms of such
license or other contract relating thereto. The Business Contribution Member
owns or has the lawful right to use all Intellectual Property as currently used
or as necessary for the conduct of the Business as now conducted. After Closing,
the Specific Company Subsidiary will have the right to use all of the
Intellectual Property as currently used or as necessary for the conduct of the
Business as now conducted, except as set forth in Exhibit K.
16
(b) Title; Validity; Pending Applications; Infringements, Etc.
(i) Except for Intellectual Property licensed to the
Business Contribution Member, the Business Contribution Member has full legal
and beneficial ownership (free and clear of any and all Encumbrances) of all of
the Intellectual Property , and neither the Business Contribution Member nor any
of the Shareholders have received any notice or claim (whether written, oral or
otherwise) challenging the Business Contribution Member's ownership or rights in
such Intellectual Property or suggesting that any other entity has any claim of
legal or beneficial ownership with respect thereto; the Business Contribution
Member has all legal and other rights required to transfer the ownership of the
Intellectual Property to the Company at the Closing as contemplated hereby;
(ii) All of the Intellectual Property is legally valid
and enforceable without any qualification, limitation or restriction on its use,
and neither the Business Contribution Member nor any of the Shareholders has
received any notice or claim (whether written oral or otherwise) challenging the
validity or enforceability of any such Intellectual Property;
(iii) Neither the use of any of the Intellectual
Property nor any other Intellectual Property used by the Business Contribution
Member will conflict with, infringe upon, violate or interfere with or
constitute an appropriation of any right, title or interest held by any other
person or entity, and there have been no claims made with respect thereto;
(iv) No other person or entity is infringing in any
respect on any part of the Intellectual Property. The Business Contribution
Member has not conducted its business (including, without limitation, the
Business), and has not used or enforced (or failed to use or enforce) any
Intellectual Property, in a manner that would result in the abandonment,
cancellation or unenforceability of any item of Intellectual Property, and the
Business Contribution Member has not taken or failed to take any action that
would result in the forfeiture or relinquishment of any Intellectual Property
used in the conduct of its business as now conducted (including, without
limitation, the Business);
(v) Except as set forth in Exhibit K, the Business
Contribution Member has no liability or obligations to any third parties
incident to the Intellectual Property used
17
or able to be used by the Business Contribution Member in the conduct of its
business (including, without limitation, the Business) as heretofore conducted;
and
(vi) The Business Contribution Member has timely met all
of its obligations to any third parties incident to the Intellectual Property
used or able to be used by the Business Contribution Member in the conduct of
its business (including, without limitation, the Business) as heretofore
conducted, and such obligations have been and will be correctly and adequately
disclosed in the Financial Statements.
(c) Protection and Maintenance of Intellectual Property.
(i) The Business Contribution Member has taken all
reasonable steps to (x) protect the Business Contribution Member's rights to the
Intellectual Property, and (y) to prevent the unauthorized use by any other
person or entity; and
(ii) The Business Contribution Member shall use all
reasonable efforts to maintain, or cause to be maintained, the Intellectual
Property in full force and effect through the Closing and, without limitation,
has renewed or has made, and will make within any applicable renewal period
ending on or prior to the Closing Date, application to renew all of the
Intellectual Property subject to expiration on or prior to the Closing Date.
Neither the Business Contribution Member nor any of the Shareholders has granted
to any other Person or entity any rights or permissions to use any of the
Intellectual Property.
(d) Definition of Intellectual Property. For purposes of this
Agreement, the term "Intellectual Property" means any patent, copyright,
trademark, trade name, service xxxx, service name, brand xxxx, brand name, logo,
corporate name, Internet domain name or industrial design, any registrations
thereof and pending applications therefor (to the extent applicable), any other
intellectual property right (including, without limitation, any know-how, trade
secret, trade right, formula, conditional or proprietary report or information,
customer or membership list, any marketing data, and any computer program,
software, database or data right), and license or other contract (including
without limitation license(s) to use specific telephone numbers and/or radio
channels/frequencies) relating to any of the foregoing, and any goodwill
associated with any business owning, holding or using any of the foregoing.
18
2.12. Insurance. The Business Contribution Member currently
maintains, and as of the Closing in Escrow and the Closing Date will maintain,
valid insurance policies, which polices provide adequate coverage, within terms
of scope and amount of coverage, for the Assets and the operations conducted by
the Business. From and after Closing, the Specific Company Subsidiary will be
solely responsible for the insurance set forth in Exhibit L. In the event that
such insurance-related Assumed Liabilities as appear on Exhibit L hereto are
unable to be assumed by the Specific Company Subsidiary directly from and after
Closing, the Business Contribution Member hereby agrees to keep such insurance
policy(ies) as are reflected by such Assumed Liabilities in full force and
effect for 60 days after Closing, at the Specific Company Subsidiary's expense,
to allow the Specific Company Subsidiary to arrange its own such insurance
policy(ies). There are no pending material claims against such insurance by the
Business Contribution Member as to which the applicable insurers have denied
coverage. In addition, there exist no material claims under such insurance that
have not been properly filed by the Business Contribution Member. During the
past two years, the Business Contribution Member has not been refused any
insurance coverage by any insurer from which the Business Contribution Member
has sought coverage.
2.13. Contracts. Each of the Contracts (i) is valid and enforceable
in accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally and subject, as to enforceability, to general principles of
equity (regardless of whether enforcement is sought in a proceeding at law or in
equity); (ii) no Default (as defined below) exists under any Contract either by
the Business Contribution Member or by any other party thereto; (iii) neither
the Business Contribution Member nor any of the Shareholders is aware of the
assertion by any third party of any claim of Default or breach under any of the
Contracts; and (iv) neither the Business Contribution Member nor any of the
Shareholders is aware of any present intention on the part of any significant
customer or supplier or other business partner of the Business Contribution
Member to either (x) terminate or significantly change its existing business
relationship with the Business Contribution Member either now or in the
foreseeable future, or (y) fail to renew or extend its existing business
relationship with the Business Contribution Member at the end of the term of any
existing contractual arrangement such entity may have with the Business
Contribution Member. For purposes of this Agreement, the term "Default" means,
with
19
respect to any Contract, (x) any breach of or default under such Contract, (y)
any event, other than the normal passage of time, which would (either with or
without notice or lapse of time or both) give rise to any right of termination,
cancellation or acceleration or any obligation to repay with respect to such
Contract, or (z) any event, other than the normal passage of time, which would
result in either a significant increase in the obligations or liabilities of, or
a loss of any significant benefit of, the party in question under such Contract.
2.14. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Company by or on behalf of the Business Contribution Member or any of the
Shareholders in connection with this Agreement, the Related Agreements or the
transactions contemplated hereby or thereby 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 statement contained herein or therein, in light of the
circumstances under which they were made, not misleading. Neither the Business
Contribution Member nor any of the Shareholders knows of any facts which are
reasonably likely to cause a material adverse effect on the Assets or the
Business.
3. Additional Representations, Warranties and Covenants of the Business
Contribution Member.
3.1. Non-Competition and Other Covenants of the Business
Contribution Member, the Shareholders, and Certain Employees
of the Business Contribution Member
Each of the Shareholders, the Business Contribution Member and
the Back-Office Employee shall have, at the Closing in Escrow, entered into
agreements, the form of which is attached to this Agreement as Exhibit B.
3.2. Confidentiality. The Business Contribution Member and the
Shareholders shall abide by the terms of the Confidentiality Agreement between
the Business Contribution Member and DMS executed on June 30, 1997. The Business
Contribution Member, the Shareholders, and the Specific Company Subsidiary each
acknowledge and agree that the Company shall have the right to disclose certain
information concerning the Specific Company Subsidiary, the Assets and/or the
Business to third parties (which third parties will in turn be bound by an
agreement similar to the
20
Confidentiality Agreement), for such general corporate purposes as includes but
is not limited to obtaining financing and/or underwriting, and for general
marketing purposes.
4. Representations and Warranties of the Company
The Company represents and warrants to the Business Contribution
Member and the Shareholders as follows:
4.1. Organization, Standing and Power. The Company is duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite power and authority to own, lease and operate its
properties and to carry on its business as now being conducted. The Company is
duly qualified and in good standing to conduct business in each jurisdiction in
which the business it is conducting, or the operation, ownership or leasing of
its properties, makes such qualification necessary.
4.2. Authority and Enforceability. The Company has all requisite
power and authority to execute and deliver this Agreement and each of the
Related Agreements to which it is a party and to perform fully its obligations
hereunder and thereunder. The execution and delivery of this Agreement and each
of the Related Agreements to which it is a party and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary action on the part of the Company. This Agreement and each of the
Related Agreements to which it is a party have been duly executed and delivered
by the Company, and constitute the legal, valid and binding obligations of the
Company enforceable against the Company in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and remedies
generally and subject, as to enforceability, to general principles of equity
(regardless of whether enforceability is considered in a proceeding at law or in
equity).
4.3. No Violations Resulting From Transactions. The execution and
delivery by the Company of this Agreement and each of the Related Agreements to
which it is a party and the consummation of the transactions contemplated hereby
and thereby by the Company, will not (a) conflict with or violate any provision
of the Certificate of Incorporation or Bylaws of the Company, or (b) except as
set forth on Exhibit E, require any consent, waiver, approval, authorization or
permission of, or filing with or notification to, any third party; (c) result in
or constitute a default,
21
or require any consent or approval of or notice to any person or entity under or
pursuant to any of the contracts to which the Company is a party; or (d) violate
any applicable laws.
4.4. Compliance with Laws.
(a) The Company is, and at all times since its inception has
been, in material compliance with all applicable laws; and
(b) The Company has not received, and does not know of the
issuance or threatened issuance by any governmental entity of, any notices of
violation or alleged violation of any applicable law. The Business Contribution
Member has been provided with true and complete copies of (i) all injunctions,
judgments, orders or consent or similar decrees or agreements of any
governmental entity to which the Company is currently subject (or to which the
Company was subject since its inception), and (ii) all correspondence through
the date hereof with respect to any of the matters referred to in clause (b) or
clause (i) of this Section 4.4.
4.5. Litigation. There is no Legal Proceeding pending or, to the
knowledge of the Company, threatened that questions the validity of this
Agreement or the Related Agreements or any action taken or to be taken by the
Company in connection with the consummation of the transactions contemplated
hereby or thereby or which seeks to prohibit, enjoin or otherwise challenge any
of the transactions contemplated hereby or thereby. Exhibit H sets forth an
accurate and complete list, and a brief description (setting forth the names of
the parties involved, the court or other governmental or mediating entity
involved, the relief sought and the substantive allegations and the status
thereof), of each Legal Proceeding pending or, to the knowledge of the Company,
threatened against or affecting the Company. To the knowledge of the Company, no
event has occurred and no circumstance, matter or set of facts exist which would
constitute a valid basis for the assertion by any third party of any claim or
Legal Proceeding, other than those listed on Exhibit H. Except as set forth in
Exhibit H, there is no outstanding or, to the knowledge of the Company,
threatened, judgment, injunction, order or consent or similar decree or
agreement (including, without limitation, any consent or similar decree or
agreement with any governmental entity) against, affecting or naming the
Company.
22
4.6. Default. The Company is not in material default of any of its
obligations, contracts, or commitments in any respect, or in breach of any
negative or affirmative covenants placed on it by its creditors, and the Company
has not been notified of any such defaults or breaches.
4.7. Financial Advisors. No person or entity has acted directly or
indirectly as a broker or finder for or to the Company in connection with the
negotiations relating to or the transactions contemplated by this Agreement or
the Related Agreements.
4.8. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Business Contribution Member by or on behalf of the Company in connection with
this Agreement, the Related Agreements or the transactions contemplated hereby
or thereby 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 statement
contained herein or therein, in light of the circumstances under which they were
made, not misleading.
5. Covenants Relating to Conduct of Business
During the period from the date of this Agreement and continuing
until the Closing Date, the Business Contribution Member and the Shareholders,
jointly and severally, covenant and agree that (except as expressly contemplated
or permitted by this Agreement, or to the extent that the Company shall
otherwise consent in writing):
5.1. Conduct of the Business Until the Closing Date. The Business
Contribution Member shall be obligated to:
(a) conduct the Business only in the ordinary course,
consistent with past practice;
(b) use its best efforts to (i) preserve the present business
operations, organization (including, without limitation, management and the
sales force) and goodwill of the Business and (ii) preserve the present
relationship of the Business Contribution Member with Persons having business
dealings with the Business Contribution Member;
(c) materially comply with all laws and with all contractual
and other obligations applicable to the Business Contribution Member;
(d) not subject any of the Assets to any new Encumbrance;
23
(e) not acquire any material properties or assets and not
sell, assign, transfer, convey, lease or otherwise dispose of any of the
material properties of the Business (including but not limited to the Assets);
(f) promptly notify the Company of (i) the occurrence of any
matter which may have a Material Adverse Effect (as hereinafter defined) on the
Business or the Assets, and (ii) any Legal Proceeding commenced by or against
the Business Contribution Member or any Legal Proceeding commenced or threatened
relating to the transactions contemplated by this Agreement.
(g) not agree to do anything prohibited by this Agreement or
anything which would make any of the representations and warranties of the
Business Contribution Member or the Shareholders in this Agreement or the
Related Agreements untrue or incorrect in any material respect.
6. Additional Agreements and Representations.
6.1. Change of Name. At the Closing, the Business Contribution
Member shall take all steps necessary to change its corporate name and/or trade
name to a name not confusingly similar to the trade name being conveyed
hereunder and to be utilized post-Closing by the Specific Company Subsidiary.
6.2. Access to Information. The Business Contribution Member agrees
that, prior to the Closing Date, the Company shall be entitled (at its sole
expense), through its officers, employees and representatives (including,
without limitation, its legal advisors and accountants), to make such
investigation of the properties, businesses and operations and financial
condition of the Business and the Business Contribution Member and examination
of its books and records as the Company may reasonably request, and to make
extracts and copies of such books and records. Any such investigation and
examination shall be conducted during regular business hours and under
reasonable circumstances, and the Business Contribution Member shall cooperate
fully therein. In order that the Company may have full opportunity to make such
physical, business, accounting and legal review, examination or investigation as
it may reasonably request of the affairs of the Business and the Business
Contribution Member, each of the Business Contribution Member and the
Shareholders shall use their respective best efforts to cause the Business
Contribution Member's
24
officers, employees, consultants, agents, accountants, attorneys and other
representatives to cooperate fully with such Company representatives in
connection with such review and examination.
6.3. Non-solicitation Pending Closing. After execution of this
Agreement, and through the Closing Date, neither the Business Contribution
Member nor any of the Shareholders shall pursue, initiate, encourage or engage
in any negotiations or discussions with any third parties concerning the sale of
the Business, the Assets, or any part thereof or concerning the terms and
conditions of this Agreement.
6.4. Additional Agreements. Each of the parties hereto agrees to use
their respective best efforts to (i) take, or cause to be taken, all appropriate
action, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement and the Related Agreements, (ii)
obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental entities, third parties and parties to
Contracts with the Business Contribution Member as are necessary for
consummation of the transactions contemplated by this Agreement and the Related
Agreements, and (iii) fulfill all conditions precedent applicable to such party
pursuant to this Agreement and the Related Agreements. In case at any time after
the Closing Date any further action is necessary or desirable to carry out the
purposes of this Agreement or the Related Agreements, each party hereto shall
use their respective best efforts to take or cause to be taken all such
necessary action.
6.5. Notification of Certain Matters. The Business Contribution
Member and the Shareholders shall give prompt notice to the Company of (a) any
notice of, or other communication relating to, a default under any contract
material to the financial condition, properties, business operations, or results
of operations of the Business and/or the Business Contribution Member to which
it is a party or is subject, (b) any notice or other communication from any
third party alleging that the consent of such third party is or may be required
in connection with the transactions contemplated by this Agreement or any of the
Related Agreements, or (c) any Material Adverse Change (as hereinafter defined)
in the properties (including but not limited to the Assets), business
operations, results of operations, financial condition or prospects of the
Business, other than changes resulting from general economic conditions. In
addition, the Business Contribution Member and the
25
Shareholders shall be required to update the schedules and other information
supplied pursuant to this Agreement at such time as the information contained
therein changes in any material respect.
6.6 Working Capital as of the Closing Date. The Shareholders and the
Business Contribution Member shall ensure that the Assets, less the Assumed
Liabilities, includes at least $127,940 working capital (defined as the excess
of current (liquid) assets over current liabilities (excluding ongoing
obligations under Contracts)) as of the Closing Date. The calculation of working
capital for purposes of this Section 6.6 shall not include any portion of the
Tangible Asset Value.
For purposes of determining whether the required working capital existed
as of the Closing Date, the Company will cause to be prepared, within 30 days of
the Closing, a balance sheet setting forth the Assets and Assumed Liabilities as
of the Closing Date. Such balance sheet shall be prepared in accordance with
GAAP, consistent with past practices of the Business Contribution Member (the
"Closing Date Balance Sheet"). In the event that more than the prescribed
$127,940 working capital existed as of the Closing Date, as determined by the
Closing Date Balance Sheet, the Company shall pay within five days thereafter,
the Business Contribution Member an amount equal to such excess. In the event
that less than the prescribed $127,940 working capital existed as of the Closing
Date, as determined by such balance sheet, the Shareholders and/or the Business
Contribution Member shall forthwith pay the Company an amount equal to the
difference between the actual working capital as of the Closing Date and
$127,940 working capital (the "Shortfall"). If the Shareholders and/or the
Business Contribution Member do not pay the Shortfall to the Company within five
days after demand, then, in addition to all other remedies which the Company may
have, the Company may deduct the amount of the Shortfall from any of the
obligations of the Company to the Shareholders or the Business Contribution
Member (including, but not limited to, the Earn-Out to which the Business
Contribution Member may be entitled thereafter).
In the event that the Business Contribution Member shall
notify the Company in writing within five days after delivery of the Closing
Date Balance Sheet of a dispute with respect to same, the parties shall notify
the certified public accounting firm of Price Waterhouse LLP (the "Accountants")
of the need for them to review the Closing Date Balance Sheet. The Accountants
shall make the final determination with respect to the correctness of the
Closing Date Balance Sheet in light of the terms and provisions of this
Agreement. In the event Price Waterhouse LLP declines
26
to act as the Accountant, then the parties shall mutually select an independent
certified public accounting firm. The decision of the Accountants shall be final
and binding on the parties. Upon such determination, the relevant party shall
immediately pay the other party any amount owning pursuant to the previous
paragraph. In addition, such party shall pay interest at the rate of seven
percent (7%) per annum from the date notice of dispute was rendered. The parties
shall bear equally the cost of the Accountant.
7. Conditions Precedent.
7.1. Conditions to Obligations of All Parties. The respective
obligations of each party under this Agreement shall be subject to the
satisfaction prior to the Closing in Escrow Date and the Closing Date of the
following conditions:
(a) Governmental Approvals. All authorizations, consents,
orders or approvals of, or declarations or filings with, or expirations of
waiting periods imposed by, any governmental entity, requisite to the
transactions contemplated hereby, shall have been filed, occurred or have been
obtained, as the case may be.
(b) No Injunctions or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the transactions contemplated by this Agreement shall be in
effect; provided that prior to invoking this condition, each party shall use
their best efforts to have any such order, injunction, legal restraint or
prohibition vacated.
7.2. Conditions to Obligations of the Company. The obligations of
the Company to effect the transactions contemplated by this Agreement are
subject to the satisfaction of the following conditions (which are for the
exclusive benefit of the Company, any or all of which may be waived in whole or
in part by the Company):
(a) Representations and Warranties. The representations and
warranties of the Business Contribution Member and the Shareholders set forth in
this Agreement (with regard to any supplements or updates thereto) shall be true
and correct in all respects as of the date of this Agreement and (except to the
extent such representations and warranties speak as of a specified, earlier
date) as of the Closing in Escrow Date and the Closing Date as though made on
and as of the Closing in Escrow Date and the Closing Date, respectively, except
as otherwise contemplated by this
27
Agreement, and the Company shall have received a certificate from the
Shareholders and the Business Contribution Member (signed by a senior executive
officer of the Business Contribution Member) certifying to such effect.
(b) Performance of Obligations. The Business Contribution
Member and the Shareholders shall each have performed all obligations required
to be performed by each such party under this Agreement at or prior to the
Closing in Escrow Date and the Closing Date, respectively, and the Company shall
have received a certificate from the Shareholders and the Business Contribution
Member (signed by a senior executive officer of the Business Contribution
Member) certifying to such effect.
(c) No Material Adverse Change. Since the date of this
Agreement, there shall have been no change, occurrence or circumstance resulting
in, or which could reasonably likely result in, individually or in the
aggregate, a Material Adverse Effect on the Assets or the Business. For purposes
of this Agreement, "Material Adverse Effect" or "Material Adverse Change" means
with respect to the Assets or Business, any significant and substantial adverse
affect or change in the condition (financial or other), business, results of
operations, assets, liabilities or operations, assets, liabilities or operations
of the Business, or any event or condition which would with the passage of time,
constitute a "material adverse change."
(d) Contractual Consents. The Business Contribution Member
and/or the Shareholders shall have given all notices to, and obtained all
consents, approvals or authorizations of or from, any individual, corporation or
other party which may be necessary to permit the consummation of the
transactions contemplated hereby (including, without limitation, any consents
required under the Contracts, or which may be required to permit the change of
ownership of any of the Assets).
(e) Related Agreements. Each of the Related Agreements to
which the Business Contribution Member and/or the Shareholders are a party shall
have been duly executed and delivered by such party. In addition, the Related
Agreements shall have been entered into by the respective parties thereto.
7.3. Conditions to Obligations of the Business Contribution Member
and the Shareholders. The obligations of the Business Contribution Member and
the Shareholders to effect
28
the transactions contemplated by this Agreement are subject to the satisfaction
of the following conditions (which are for the exclusive benefit of the Business
Contribution Member and the Shareholders), any or all of which may be waived in
whole or in part by the Business Contribution Member or the Shareholders.
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true and correct
in all respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of a specified, earlier date) as of the
Closing in Escrow Date and the Closing Date as though made on and as of the
Closing in Escrow Date and the Closing Date, respectively, except as otherwise
contemplated by this Agreement.
(b) Performance of Obligations. The Company shall have
performed all obligations required to be performed by it under this Agreement at
or prior to the Closing in Escrow Date and the Closing Date, respectively.
(c) Related Agreements. Each of the Related Agreements shall
have been duly executed and delivered by the parties thereto.
8. Termination.
8.1 Termination. This Agreement may be terminated at any time prior
to the Closing:
(a) by mutual written consent of the Company and the Business
Contribution Member;
(b) by either the Company or the Business Contribution Member,
if the closing of the Initial Public Offering does not occur by March 31, 1998;
or
(c) by the Company in the event that the Business Contribution
Member and/or any of the Shareholders do not timely deliver representation
letters satisfactory to the Company.
8.2. Effect of Termination Under Section 8.1. In the event of
termination of this Agreement by either the Company or the Business Contribution
Member as provided in Section 8.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of any party hereto or
any of its respective Affiliates, officers, directors or shareholders except (i)
for
29
the obligation of the Business Contribution Member and the Shareholders to
refund to the Company the audit expenses as set forth in Section 1.4 of this
Agreement in the event the Agreement is terminated by the Company pursuant to
Section 8.1(c) after all conditions to closing have been satisfied, including,
but not limited to the closing of the Initial Public Offering; (ii) for any and
all obligations under the confidentiality provisions contained in Section 3.2 of
this Agreement; and (iii) to the extent that such termination results from the
willful breach by a party hereto of any of its representations or warranties, or
of any of its covenants or agreements, as set forth in this Agreement. In the
event that termination results from the willful breach by a party hereto of any
of its representations or warranties, or of any of its covenants or agreements,
as set forth in this Agreement, the breaching party shall be liable to the
non-breaching party for all direct damages (but not indirect or consequential
damages) incurred as a result of such willful breach.
9. Indemnification.
9.1. Indemnification.
(a) Indemnification by the Business Contribution Member and
the Shareholders. The Business Contribution Member and the Shareholders each
hereby agrees to jointly and severally indemnify, defend and hold harmless the
Company, the Specific Company Subsidiary, and their respective officers,
directors, employees and agents (collectively, the "Indemnitee") from and
against and in respect of any and all Losses (as defined below) to the extent
resulting from, arising out of, relating to, imposed upon or incurred by the
Indemnitee by reason of (i) the conduct of the Business prior to the Closing
Date (but only to the extent that the amount of such Loss was not a stated
liability on the Business Contribution Member's most recently dated balance
sheet delivered to the Company), (ii) any material inaccuracy in or breach of
any of the Business Contribution Member's and/or any of the Shareholders'
representations, warranties, covenants or agreements contained in this
Agreement, the Related Agreements or in any other agreement or document entered
into or delivered on or after the date hereof in connection with this Agreement
or any of the transactions contemplated hereby and thereby, (iii) any liability
or obligation of the Business Contribution Member and/or any of the Shareholders
other than an Assumed Liability, and (iv) any non-compliance with any notice
requirement, if any, which may be contained in the Uniform Commercial Code as
adopted by the State of California relating to bulk sales. Provided, however,
30
the indemnification by the Business Contribution Member and/or the Shareholders
under this Section 9.1.(a) shall include direct damages only (and not indirect
or consequential damages). For purposes of this Agreement, the term "Losses"
means any and all deficiencies, judgments, settlements, demands, claims, actions
or causes of action, assessments, liabilities, losses, damages (whether direct,
indirect or consequential), interest, fines, penalties, costs and expenses
(including, without limitation, reasonable legal, accounting and other costs and
expenses incurred in connection with investigating, defending, settling or
satisfying any and all demands, claims actions, causes of action, suits,
proceedings, assessments, judgments or appeals, and in seeking indemnification
therefor); notwithstanding anything else herein to the contrary, the amount of
indemnification by the Business Contribution Member and the Shareholders,
collectively, shall not exceed the Purchase Price actually received by the
Business Contribution Member.
(b) Indemnification by the Company. The Company hereby agrees
to indemnify, defend and hold harmless the Business Contribution Member and/or
the Shareholders from and against and in respect of any and all Losses resulting
from, arising out of, relating to, imposed upon or incurred by the Business
Contribution Member and/or the Shareholders by reason of (i) any inaccuracy in
or breach of any of the Company's representations, warranties, covenants or
agreements contained in this Agreement or in any other agreement or document
entered into or delivered by the Company on or after the date hereof in
connection with this Agreement or any of the transactions contemplated hereby
and/or thereby; or (ii) any failure to discharge the Assumed Liabilities as
required by their terms. Provided, however, the indemnification by the Company
under this Section 9.1.(b) shall include direct damages only (and not indirect
or consequential damages) and shall be limited in the aggregate to the Purchase
Price actually received by the Business Contribution Member.
9.2. Notice of Asserted Liability. Promptly after any party hereto
becomes aware of any fact, condition or event that may give rise to Losses for
which idemnification may be sought under this Section 9, the party entitled to
indemnification shall give notice thereof in the manner provided in Section 10.2
of this Agreement (the "Claims Notice") to the other party ("Indemnitor"). The
Claims Notice shall include a description in reasonable detail of any claim or
the commencement (or threatened commencement) of any action, proceeding or
investigation (an "Asserted Liability") against indemnitee, and shall indicate
the amount (estimated, if necessary) of the Losses that have
31
been or may be suffered by indemnitee. Failure of indemnitee to promptly give
notice hereunder shall not affect rights to indemnification hereunder, except to
the extent that Indemnitor demonstrates actual damage caused by such failure.
Upon Indemnitor's request, indemnitee shall provide Indemnitor with such
reasonable documentation as Indemnitor shall request pertaining to any general
claim(s) made by indemnitee.
9.3. Opportunity to Defend. Indemnitor may elect to compromise or
defend, at its own expense and by its own counsel, any claim; provided, however,
that Indemnitor may not compromise or settle any Asserted Liability without the
consent of indemnitee, such consent not to be unreasonably withheld, unless such
compromise or settlement requires no more than a monetary payment for which
indemnitee and any other indemnifiable parties hereunder are fully indemnified
or involves other matters not binding upon indemnitee or such other
indemnifiable parties. If Indemnitor elects to compromise or defend such claim,
it shall within 15 days (or sooner, if the nature of the claim so requires)
notify indemnitee of its intent to do so and indemnitee shall cooperation the
compromise of, or defense against, such claim. If indemnitor elects not to
compromise or defend any claim, fails to notify indemnitee of its election as
herein provided or contests its obligation to indemnify, indemnitee may pay,
compromise or defend such claim without prejudice to any right it may have
hereunder. In any event, each party may participate, at its own expense, in the
defense of any claim in respect of which it may have an indemnification
obligation under Section 9.1. If either party chooses to defend or participate
in the defense of any claim, it shall have the right to receive from the other
party any books, records or other documents within such party's control that are
necessary or appropriate for such defense.
10. General Provisions.
10.1. Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements in this Agreement shall survive the
Closing.
10.2. Notices. Any notice or communication required or permitted
hereunder shall be in writing and either delivered personally or telecopied or
sent by overnight courier, or by certified or registered mail, postage prepaid,
and shall be deemed to be given, dated and received when so delivered personally
or by courier or telecopied, or, if mailed, five business days after the date of
32
mailing to the following address or telecopy number, or to such other address or
addresses as such Person may subsequently designate by written notice given
hereunder:
(a) if to Company, to:
Dispatch Management Services Corp.
00000 Xxxxxx Xxxxx Xxxxx
Xxxxxxxxxx, Xxxxxxxx 00000
Attention: Xxxxx Xxxxxxxxx, Chief Executive Officer
(b) if to the Business Contribution Member or the
Shareholders, to:
Xxxxx Xxxxx
Sheppard, Mullin, Xxxxxxx & Xxxxxxx, LLP
Forty-Eighth Floor
000 Xxxxx Xxxx Xxxxxx
Xxx Xxxxxxx, XX 00000-0000
10.3. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be considered an original and all of which
shall be considered one and the same agreement and shall become effective when
two or more counterparts have been signed by each of the parties and delivered
to the other parties, it being understood that all parties need not sign the
same counterpart.
10.4. Entire Agreement; No Third Party Beneficiaries. This Agreement
(together with the Related Agreements and any other documents and instruments
referred to herein) constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereto and is not intended to confer upon any
Person other than the parties hereto any rights or remedies hereunder. Subject
to applicable law, this Agreement may be amended, modified or supplemented only
by written agreement of all parties hereto with respect to any of the terms
contained herein, and each party hereto agrees to be bound by any such
amendment, modification or supplement.
33
10.5. Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Maryland, without giving effect to
the principles of conflicts of law thereof.
10.6. Severability. If any term or other provision of this Agreement
is invalid, illegal or unenforceable, all other provisions of this Agreement
shall remain in full force and effect so long as the economic or legal substance
of the transactions contemplated hereby is not affected in any manner materially
averse to any party. In the event that the enforceability of any non-competition
or similar covenants contained herein or in any Related Agreement is called into
question as the result of time, geographical or other applicable limitations
specified in such covenants, such time, geographical or other applicable
limitations shall be deemed modified to the minimum extent necessary to render
the applicable provisions of such covenants enforceable.
10.7. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties. The Business Contribution Member shall have the
right to assign its rights under this Agreement to the Shareholders subject to
the Company's approval, in its reasonable discretion, of the assignment
documents used to effect such assignment.
10.8. Specific Performance. The parties hereto acknowledge that
irreparable damage would result if any of the covenants of this Agreement were
not specifically enforced, and they therefore consent that the rights and
obligations of the parties under this Agreement may be enforced by a decree of
specific performance issued by a court of competent jurisdiction. Such remedy
shall, however, not be exclusive and shall be in addition to any other remedies
which any party may have under this Agreement or otherwise. Without limiting the
foregoing, the Business Contribution Member and the Shareholders acknowledge
that the failure to comply with any of the provisions of Sections 3.1, 3.2. and
6.3 hereof will result in irreparable harm for which there is no adequate remedy
at law and that the Company and/or the Specific Company Subsidiary shall be
entitled, without the necessity of proving actual damages, to injunctive relief
in addition to damages and all other remedies which may otherwise be available
to the Company and/or the Specific Company Subsidiary.
34
10.9. Fees and Expenses. All costs and expenses, including but not
limited to all fees and expenses of attorneys, lenders, financial advisers and
accountants, in connection with the negotiation, execution and delivery of this
Agreement, the Related Agreements and the consummation of the transactions
contemplated hereby and thereby, shall be paid by the party incurring such costs
and expenses.
10.10. Arbitration. Other than the Company's right to institute
legal action for a breach of the confidentiality, non-competition and
non-solicitation covenants set forth in Sections 3.1, 3.2 and 6.3 hereinabove,
any issue, controversy, dispute or claim arising out of or relating to this
Agreement or its alleged breach that cannot be resolved by mutual agreement
shall be resolved exclusively by arbitration by a single arbitrator in Los
Angeles County, California, in accordance with the commercial arbitration rules
of the American Arbitration Association ("AAA") and judgment on the award
rendered by the arbitrator may be entered by any court having jurisdiction
thereof. It is acknowledged by the Business Contribution Member and the
Shareholders that money damages are inadequate to compensate the Company and/or
the Specific Company Subsidiary for a breach of the terms of this Agreement, and
that the Company and/or the Specific Company Subsidiary shall be entitled to
specific performance of the terms of this Agreement. The arbitrator may enter a
default decision against any party who fails to participate in the proceeding.
The decision of the arbitrator shall be final, conclusive, binding and
non-appealable. The losing party shall pay all costs and expenses of
arbitration.
The arbitrator shall be selected by consent of the parties, if possible.
If the parties fail to reach agreement upon appointment of the arbitrator within
ten days after a demand for arbitration is made, the arbitrator shall be
selected from a list of proposed arbitrators submitted by AAA. The selection
process shall be that which is set forth in the AAA commercial arbitration rules
then prevailing, except that (1) the number of preemptory strikes shall not be
limited, and (2) if the parties fail to select the arbitrator from three lists,
AAA shall have the power to make an appointment. If an arbitrator should die,
withdraw, or otherwise become incapable of serving, a replacement shall be
selected and appointed in a like manner.
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10.11 Disclosure to Third Parties. The Company shall have the right
to disclose to third parties, in whatever manner the Company may determine, the
fact that this Agreement has been executed, the names of the parties to this
Agreement and the terms hereof.
36
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
or on behalf of each of the parties hereto as of the date first above written.
"COMPANY"
Attest: DISPATCH MANAGEMENT SERVICES CORP.
By: /s/ Xxxxx Xxxxxxxxx
--------------------------------- ---------------------------------------
Name: Xxxxx Xxxxxxxxx
Title: Chief Executive Officer
"BUSINESS CONTRIBUTION MEMBER"
Attest: PROFALL, INC.
By: /s/ Xxxxx Xxxxxxx
--------------------------------- ---------------------------------------
Name: Xxxxx Xxxxxxx
Title: President
"SPECIFIC COMPANY SUBSIDIARY"
Attest:
------------------------------------------
By: /s/ Xxxxx Xxxxxxxxx
--------------------------------- ---------------------------------------
Name: Xxxxx Xxxxxxxxx
Title: Chief Executive Officer
Witness: "SHAREHOLDERS"
/s/ Xxxxxx Xxxxxxxx
--------------------------------- ------------------------------------------
Xxxxxx Xxxxxxxx
37
Witness:
/s/ Xxxxxx Xxxxxxxx
--------------------------------- ------------------------------------------
Xxxxxx Xxxxxxxx
Witness:
/s/ Xxxxx Xxxxxxx
--------------------------------- ------------------------------------------
Xxxxx Xxxxxxx
Witness:
/s/ Xxxxxxx Xxxxxxx
--------------------------------- ------------------------------------------
Xxxxxxx Xxxxxxx
38
