Exhibit 2.1
ASSET PURCHASE
AGREEMENT
BETWEEN
CRYSTALTECH WEB HOSTING,
INC.
AND
NEWTEK BUSINESS SERVICES,
INC.
April
, 2004
TABLE OF CONTENTS
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Section 1.
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Definitions
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Section 2.
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Basic
Transaction
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(a) Purchase
and Sale of Assets
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(b) Assumption
of Liabilities
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(c) Purchase
Price
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(d) Reconciled
Adjustment Amount
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(e) Contingent
Amount Payments
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(f) The
Closing
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(g) Deliveries
at the Closing
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(h)
Allocation
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(i) Buyer
Acquisition Subsidiary
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(j) Buyer
Stock
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(k)
Registration of Buyer
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Section 3.
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Representations
and Warranties of the Seller
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(a)
Organization of the Seller
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(b)
Authorization of Transaction
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(c)
Non-contravention
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(d)
Brokers’ Fees
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(e) Title to
Assets
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(f)
Subsidiaries
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(g) Financial
Statements
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(h) Events
Subsequent to Most Recent Fiscal Year End
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(i) Actions
Since December 31, 2002
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(j) Undisclosed
Liabilities
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(k) Legal
Compliance
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(l) Tax
Matters
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(m) Real
Property
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(n)
Intellectual Property
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(o) Personal
Property
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(p)
Contracts
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(q) Notes and
Accounts Receivable
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(r) Powers of
Attorney
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(s)
Insurance
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(t)
Litigation
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(u) Product
Warranty
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(v) Product
Liability
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(w)
Employees
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(x) Employment
Matters
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(y) Employee
Benefits
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(z)
Environment, Health and Safety
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(aa) Certain
Business Relationships With the Seller and Its
Subsidiaries
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(bb) Absence of
Certain Practices
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(cc) Suppliers
and Customers
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(dd) All
Assets
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(ee)
Disclosure
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(ff) Seller
Presentation
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(gg) Customer
List
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Section 4.
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Representations
and Warranties of the Buyer
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(a)
Organization of the Buyer
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(b)
Authorization of Transaction
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(c)
Non-contravention
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(d)
Brokers’ Fees
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Section 5.
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Covenants
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(a)
General
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(b) Notices and
Consents
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(c) Operation
of Business
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(d)
Preservation of Business
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(e) Full
Access
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(f) Notice of
Developments
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(g)
Exclusivity
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(h)
Taxes
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(i) Employees
of Newco
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(j) Name
Change
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(k) Issuance of
Buyer Stock to Seller Stockholder & Transferred
Employees
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Section 6.
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Conditions to
Obligation to Close
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(a) Conditions
to Obligation of the Buyer
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(b) Conditions
to Obligation of the Seller
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Section 7.
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Termination
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(a) Termination
of Agreement
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(b) Effect of
Termination
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Section 8.
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Miscellaneous
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(a) Survival of
Representations and Warranties
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(b) Press
Releases and Public Announcements
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iii
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(c) No Third Party Beneficiaries
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(d) Entire Agreement
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(e) Succession and Assignment
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(f) Counterparts
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(g) Headings
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(h) Notices
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(i) Governing Law
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(j) Amendments and Waivers
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(k) Severability
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(l) Expenses
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(m) Gender, Etc.
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(n) Construction
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(o) Incorporation of Exhibits and
Schedules
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(p) Bulk Transfer Laws
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(q) Jurisdiction
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Exhibit A – Seller Stockholder
Agreement
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Exhibit B – Escrow Agreement
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Exhibit C – Software
Agreements
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Exhibit D –Seller Stockholder Employment
Agreement
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Exhibit E – Dan Frazer Employment
Agreement
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Exhibit F – Derek Curtis Employment
Agreement
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Exhibit G – Form of Opinion of Counsel to
the Seller
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Exhibit H – Form of Opinion of Counsel to
the Buyer
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Disclosure Schedules – Exceptions to
Representations and Warranties
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iv
ASSET PURCHASE
AGREEMENT
This Asset Purchase Agreement (this
“Agreement”) is entered into on this
day of April, 2004, by and between
Newtek Business Services, Inc., a New York corporation (the
“Buyer”), and CrystalTech Web Hosting, Inc., an Arizona
corporation (the “Seller”). The Buyer and Seller are
referred to collectively herein as the
“Parties.”
This Agreement contemplates a
transaction in which the Buyer will purchase all of the assets (and
assume certain of the liabilities) of the Seller in return for cash
and the Buyer Stock. The sole stockholder of Seller is Tim Uzzanti,
an individual residing in Maricopa County, Arizona (the
“Seller Stockholder”).
Now, therefore
, in consideration of the premises
and the mutual promises herein made and in consideration of the
representations, warranties and covenants herein contained, the
Parties agree as follows.
1. Definitions.
(a) “ Accredited
Investor ” has the meaning set forth in Regulation D
promulgated under the Securities Act.
(b) “ Acquired Assets
” means all right, title and interest in and to all of the
assets of the Seller, including the following (but excluding the
Excluded Assets):
(i) real property, leaseholds and
subleaseholds therein, improvements, fixtures and fittings thereon
and easements, rights-of-way and other appurtenants thereto (such
as appurtenant rights in and to public streets) listed on
Schedule 1(b)(i) attached hereto;
(ii) tangible personal property
(such as machinery, equipment, supplies, purchased parts,
furniture, and automobiles) listed on Schedule 1(b)(ii)
attached hereto (collectively, the “Personal
Property”);
(iii) all rights of the Seller in
and to the Intellectual Property, goodwill associated therewith,
licenses and sublicenses granted and obtained with respect thereto
and rights there under, remedies against infringements thereof and
rights to protection of interests therein under the laws of all
jurisdictions;
(iv) leases and subleases of
Personal Property listed on Schedule 1(b)(iv) attached
hereto and the rights thereunder;
(v) agreements, contracts,
indentures, mortgages, instruments, Security Interests, guaranties,
other similar arrangements and rights thereunder listed on
Schedule 1(b)(v) attached hereto;
(vi) accounts, notes and other
receivables listed on Schedule 1(b)(vi) attached
hereto;
(vii) claims, deposits, warranty
claims against any supplier or other provider of goods or services
to the Seller, prepayments, refunds, causes of action, choses in
action, claims in bankruptcy, rights of recovery, indemnification
rights from third parties, rights of set off and rights of
recoupment (excluding any such item relating to the payment of
taxes);
(viii) insurance policies with
respect to which the Seller is a party listed on Schedule
1(b)(viii) attached hereto;
(ix) all rights to insurance and
condemnation proceeds relating to the damage, destruction or
impairment of the Acquired Assets, which damage, destruction or
impairment occurs on or after the date of this
Agreement;
(x) franchises, approvals, permits,
licenses orders, registrations, certificates, variances and similar
rights obtained from governments and Governmental Agencies listed
on Schedule 1(b)(x) attached hereto; and
(xi) books, records, ledgers, files,
documents, correspondence, lists (including the Customer List and
any other customer lists), files related to Transferred Employees,
plats, architectural plans, drawings and specifications, creative
materials, advertising and promotional materials, equipment
warranty information, studies, reports and other printed or written
materials;
(c) “ Adjustment Amount
” means that dollar amount determined by mutual agreement of
the Parties at the Closing, (which may be a positive or negative
number) which shall equal the sum of (A) plus (B), less the sum of
(C) plus (D), as follows:
The sum of:
(A) all monthly fees (excluding set
up fees or any one time fees) paid to and received by the Seller
prior to the Settlement Date from its customers for base services
to be rendered after the Settlement Date,
plus:
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(B) the face amount of all Assumed
Liabilities,
less
the sum of:
(C) all unbilled and/or unpaid
accounts receivable for overage services provided by the Seller for
the month immediately prior to the Closing,
plus:
(D) the amount of any prepaid
expenses.
(d) “ Adjustment Amount
Shortfall ” shall have the meaning set forth in Section
2(d).
(e) “ Affiliate ”
has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
(f) “ Applicable Rate
” means the corporate base rate of interest publicly
announced from time to time at Chase Bank.
(g) “ ARC Properties
Lease ” means the Business and Commercial Lease dated
October 23, 2001 (as supplemented or amended), by and between the
Seller and Phoenix 6135 N. 7th Street, LLC.
(h) “ Assumed
Liabilities” means (a) those liabilities of Seller listed
on Schedule 1(h) and (b) all obligations of the Seller under
the agreements, contracts, leases, licenses and other arrangements
referred to in the definition of Acquired Assets either (i) to
furnish goods, services and other non-cash benefits to another
party after the Closing, (ii) to pay for goods, services and other
non-cash benefits that another party will furnish to it after the
Closing, or (iii) all other liabilities and obligations of the
Seller listed on Schedule 1(h) attached hereto under an
express statement (that the Buyer has initialed) to the effect that
the definition of Assumed Liabilities will include the liabilities
and obligations so disclosed; provided, however, that the Assumed
Liabilities shall not include (i) any liability of the Seller for
Income Taxes, (ii) any liability of the Seller for transfer, sales,
use and other taxes arising in connection with the consummation of
the transactions contemplated hereby, (iii) any liability of the
Seller for the unpaid taxes of any Person (other than the Buyer and
its Subsidiaries) under Reg. §1.1502-6 (or any similar
provision of state, local or foreign law), as a transferee or
successor, by contract or otherwise, (iv) any liability or
obligation of the Seller or any of its ERISA Affiliates under any
Plan maintained by the Seller or any of its ERISA Affiliates, (v)
any obligations and
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benefits (financial or otherwise), if any, and
any responsibility owed to any Transferred Employee that arise or
result from such Transferred Employee’s employment (whether
by contract, at law or otherwise) with the Seller whether arising
or accruing before, on or after the Closing Date or resulting from
the termination of such Transferred Employee’s employment
with the Seller (but not those obligations arising from the
Transferred Employee’s employment with Newco), (vi) any
liabilities or obligations of the Seller under the ARC Properties
Lease, (vii) any liabilities or obligations to pay any fees or
commissions to any broker, finder or agent in connection with this
Agreement and the transactions contemplated hereby, (viii) any
obligation of the Seller to indemnify any Person (including the
Seller Stockholder) by reason of the fact that such Person was a
director, officer, employee or agent of or was serving at the
request of any such entity as a partner, trustee, director,
officer, employee or agent of another entity (whether such
indemnification is for judgments, damages, penalties, fines, costs,
amounts paid in settlement, losses, expenses or otherwise and
whether such indemnification is pursuant to any statute, charter
document, bylaw, agreement or otherwise), (ix) any liability of the
Seller for costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby or (x) any
liability or obligation of the Seller under this
Agreement.
(i) “ Audited Financial
Statements ” has the meaning set forth in Section
3(g).
(j) “ Base Price
” has the meaning set forth in Section 2(c).
(k) “ Business ”
means the business sold by the Seller to the Buyer hereunder, which
primarily constitutes of the provision of services to third parties
related to what is commonly referred to as “web
hosting.”
(l) [ INTENTIONALLY OMITTED
]
(m) “ Buyer ” has
the meaning set forth in the preface above.
(n) “ Buyer Group
” has the meaning set forth in Section 5(b) of the Seller
Stockholder Agreement.
(o) “ Buyer Stock
” means the common stock of Newtek Business Services, Inc.,
par value $0.02, listed on the Nasdaq National Market under the
symbol of “NKBS.”
(p) “ Buyer Stock Payment
Amount ” has the meaning set forth in Section
2(c).
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(q) “ Change in Control
” means the execution and closing of an agreement providing
for the merger or sale of substantially all of the assets of Buyer
(or its successor) where the Buyer is not the survivor or where the
board of directors of the survivor following such merger or sale
does not consist of previous Buyer directors constituting a
majority.
(r) “ Closing ”
has the meaning set forth in Section 2(f).
(s) “ Closing Date
” has the meaning set forth in Section 2(f).
(t) “ Code ”
means the Internal Revenue Code of 1986, as amended.
(u) “ Confidential
Information ” means any information concerning the
businesses and affairs of the Seller that is not already generally
available to the public; provided however, that Confidential
Information shall not include any information concerning the
business and affairs of the Seller that has been disclosed to any
Person prior to the date hereof without an obligation to keep such
information confidential, but only to the extent
thereof.
(v) “ Customer List
” has the meaning set forth in Section 3(gg).
(w) “ Disclosure
Schedules ” has the meaning set forth in Section
3.
(x) “ Earnest Money
Deposit ” has the meaning set forth in Section
2(f).
(y) “ EBITDA ”
means the net earnings of an entity without deduction of interest
expenses, taxes, depreciation and amortization, as calculated
according to GAAP, consistently applied; provided, however, that
for purposes of calculating the EBITDA of the Business under
Sections 2(e)(i) and 2(e)(ii), the EBITDA of the Business shall be
computed without regard to any gains, losses, profits or expenses
realized from any Extraordinary Item that has a material effect on
the EBITDA of the Business. As used in this definition, the term
“material effect” means any Extraordinary Item that (i)
has a value per occurrence in excess one-half percent (0.5%) of the
EBITDA of the Business for any annual calculation period, or (ii)
has a value in the aggregate in excess of five percent (5%) of the
EBITDA of the Business for any annual calculation
period.
(z) “ Employment
Agreements ” has the meaning set forth in Section
6(a)(xiii).
(aa) “ Environmental,
Health and Safety Laws ” means the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the
Resource Conservation and Recovery Act of 1976 and the Occupational
Safety and Health Act of
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1970, each as amended, together with all other
laws (including rules, regulations, codes, plans, injunctions,
judgments orders, decrees, rulings and charges there under) of
federal, state, local and foreign governments (and all agencies
thereof) concerning pollution or protection of the environment,
public health and safety or employee health and safety, including
laws relating to emissions, discharges, releases or threatened
releases of pollutants, contaminants or chemical, industrial,
hazardous or toxic materials or wastes into ambient air, surface
water, ground water or lands or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of pollutants, contaminants or
chemical, industrial, hazardous or toxic materials or
wastes.
(bb) “ ERISA ”
means the Employee Retirement Income Security Act of 1974, as
amended.
(cc) “ ERISA Affiliate
” mean all Persons that are treated as being under common
control with the Seller or any of its Affiliates of the Seller
under Code Section 414(b), (c), (m) or (o).
(dd) “ Escrow Agent
” means the escrow agent party to the Escrow
Agreement.
(ee) “ Escrow Agreement
” means the Escrow Agreement among the Buyer, Newco, the
Seller, the Seller Stockholder and the Escrow Agent substantially
in the form set forth as Exhibit B attached
hereto.
(ff) “ Excess Adjustment
Amount ” has the meaning set forth in Section
2(d).
(gg) “ Excluded Assets
” means (i) the corporate charter, qualifications to conduct
business as a foreign corporation, contracts with registered agents
relating to foreign qualifications, taxpayer and other
identification numbers, seals, minute books, stock transfer books,
blank stock certificates and other documents relating to the
organization, maintenance of the existence of the Seller as a
corporation; (ii) the ARC Properties Lease; (iii) the insurance
policies with respect to which the Seller is a party other than the
insurance policies set forth on Schedule 1(b)(viii) ; (iv)
any of the rights of the Seller under this Agreement (or under any
agreement between the Seller on the one hand and the Buyer on the
other hand entered into on or after the date of this Agreement);
(v) all cash on hand or on deposit by Seller as of the Settlement
Date; (vi) the other property and assets listed on Schedule
1(gg) attached hereto; and (vii) all other assets of the
Seller
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listed on Schedule 1(gg) attached hereto
under an express statement (that the Buyer has initialed) to the
effect that the definition of Excluded Assets will include the
assets so disclosed.
(hh) “ Extraordinary
Items ” shall mean any transactions or events (i) that
are of a character significantly different from the typical or
customary business activities of the Business as of December 31,
2003 or (ii) that constitute a material change in the manner or
operation of the Business as of December 31, 2003. Notwithstanding
the foregoing, Extraordinary Items shall include (A) any legal or
accounting fees and expenses incurred in connection with the
preparation, execution and performance of this Agreement and the
Purchase Documents, and (B) any increased gains, losses, profits or
expenses realized from the effect of any merger with or acquisition
of another business by Newco subsequent to the Closing.
(ii) “ Extremely Hazardous
Substance ” has the meaning set forth in Section 302 of
the Emergency Planning and Community Right-to-Know Act of 1986, as
amended.
(jj) “Financial
Statement” has the meaning set forth in Section
3(g).
(kk) “ First Contingent
Amount ” has the meaning set forth in Section
2(e)(i).
(ll) “ First Contingent
Amount Period ” has the meaning set forth in Section
2(e)(i).
(mm) “ First Contingent
Amount Threshold ” has the meaning set forth in Section
2(e)(i).
(nn) “ GAAP ”
means United States generally accepted accounting principles, as in
effect from time to time.
(oo) “ Good Reason
” has the meaning set forth in Section 1(j) of the Seller
Stockholder Employment Agreement.
(pp) “ Governmental
Agency ” means any (i) United States federal, state,
local, municipal, or other governmental or quasi-governmental
authority of any nature (including any governmental agency, branch,
department, official or entity and any court or other tribunal), or
(ii) United States body exercising, or entitled to exercise, any
administrative, executive, judicial, legislative, police,
regulatory or taxing authority or power of any nature.
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(qq) “ Income Tax
” means any federal, state, local or foreign income tax,
including any interest, penalty or addition thereto, whether
disputed or not.
(rr) “ Income Tax
Return ” means any return, estimate, declaration, report,
claim for refund or information return or statement relating to
Income Taxes, including any schedule or attachment thereto and
including any amendment thereof.
(ss) “ Indemnity Reduction
Amount ” means the amount, if any, by which the aggregate
amount to which the Buyer Group is entitled to indemnity pursuant
to Section 5(b) of the Seller Stockholder Agreement plus a
mutually agreeable good faith estimate by the Buyer and the Seller
of the maximum amount of each claim or Third Party Claim that has
been made by a member of the Buyer Group that is being disputed by
the Seller or the Seller Stockholder or the amount of which claim
or Third Party Claim has not been determined. In the event that the
Buyer and the Seller are unable to mutually agree upon a good faith
estimate of the maximum amount of each claim or Third Party Claim
that has been made by a member of the Buyer Group that is being
disputed by the Seller or the Seller Stockholder or the amount of
which claim or Third Party Claim has not been determined, the
dispute shall be submitted to arbitration. Christopher Skelly shall
be the arbitrator for any disputes pertaining to the good faith
estimate to be used for purposes of calculating the Indemnity
Reduction Amount. The Buyer and the Seller shall each present to
the arbitrator its good faith estimate of the maximum amount of
each claim or Third Party Claim that has been made by a member of
the Buyer Group that is being disputed by the Seller or the Seller
Stockholder or the amount of which claim or Third Party Claim has
not been determined and the arbitrator shall select either the
Buyer’s or the Seller’s good faith estimate as the good
faith estimate to be used for purposes of calculating the Indemnity
Reduction Amount. The decision of the arbitrator shall be the
binding and final determination of the good faith estimate to be
used for purposes of calculating the Indemnity Reduction Amount.
The fees and expenses of the arbitrator shall be borne by the party
whose good faith estimate was not selected by the
arbitrator.
(tt) “ Intellectual
Property ” means all of the following that is owned by,
licensed by, licensed to, or used by the Seller (including
authorized copies or embodiments thereof) (a) all inventions
(whether patentable or unpatentable and whether or not reduced to
practice), all improvements thereto and all patents, patent
applications and patent
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disclosures, together with all reissuances,
continuations, continuations-in-part, revisions, extensions and
reexaminations thereof, (b) all registered and unregistered
trademarks, service marks, trade dress, logos, trade names,
corporate names or other indications of origin, including, but not
limited to the name “CrystalTech Web Hosting, Inc.” and
all variations or combinations thereof, together with all
translations, adaptations, derivations and combinations thereof and
including all goodwill associated therewith and all applications,
registrations and renewals in connection therewith, (c) all
copyrightable works, all copyrights and all applications,
registrations and renewals in connection therewith, (d) all mask
works and all applications, registrations and renewals in
connection therewith, (e) all trade secrets and confidential
business information (including ideas, research and development,
know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings,
specifications, customer and supplier lists, pricing and cost
information and business plans, marketing plans and proposals,
operations manuals, training manuals and other technical data), (f)
all computer software (including data and related documentation),
domain name servers, software systems and databases, (g) all
internet domain names, email addresses and world wide web addresses
and pages used or otherwise employed by the Seller, (h) all other
proprietary rights and (i) all copies and tangible embodiments of
any of the foregoing (in whatever form or medium).
(uu) “ Intellectual
Property Licenses ” has the meaning set forth in Section
3(n)(iii).
(vv) “ Interim Financial
Statements ” has the meaning set forth in Section
3(g).
(ww) “ IRS ”
means the Internal Revenue Service.
(xx) “ Just Cause
” has the meaning set forth in Section 1(k) of the Seller
Stockholder Employment Agreement.
(yy) “ Knowledge
” means with respect to (i) the Seller, the knowledge of Tim
Uzzanti and all other employees of the Seller if (A) such
individual is actually aware of such fact or matter or (B) such
individual would reasonably be expected to become aware of such
fact or matter in the ordinary course of discharging such
individual’s duties as an employee of the Seller, or (ii) the
Buyer, the knowledge of Barry Sloane and all other senior
management employees of the Buyer if (A) such individual is
actually aware of
9
such fact or matter or (B) such individual would
reasonably be expected to become aware of such fact or matter in
the ordinary course of discharging his duties as an employee of the
Buyer.
(zz) “ Law ”
means any federal, state or local statute, law, ordinance, code,
rule, regulation, order, decree, writ, judgment or
injunction.
(aaa) “ Material Adverse
Effect ” means any change or effect, individually or in
the aggregate with any other change or effect, that is or would
reasonably be expected to be materially adverse to the Business,
the Acquired Assets, the ownership or use of the Acquired Assets by
the Buyer, the Assumed Liabilities or the financial condition,
operations, results of operations or future prospects of the
Seller.
(bbb) “ Most Recent Balance
Sheet ” means the balance sheet contained within the Most
Recent Financial Statements.
(ccc) “ Most Recent
Financial Statements ” has the meaning set forth in
Section 3(g).
(ddd) “ Most Recent Fiscal
Month End ” has the meaning set forth in Section
3(g).
(eee) “ Most Recent Fiscal
Year End ” has the meaning set forth in Section
3(g).
(fff) “ Newco ”
has the meaning set forth in Section 2(i).
(ggg) “ Ordinary Course of
Business ” means the ordinary course of business
consistent with past custom and practice (including with respect to
quantity and frequency).
(hhh) “ Party ”
has the meaning set forth in the preface above.
(iii) “ Person ”
means any individual, general or limited partnership, corporation
(including any non-profit corporation), association, joint stock
company, firm, trust, estate, joint venture, limited liability
company, unincorporated organization or Governmental
Agency.
(jjj) “ PBGC ”
means the Pension Benefit Guaranty Corporation.
(kkk) “ Personal
Property ” has the meaning set forth in Section
1(b)(ii).
(lll) “ Plan ”
has the meaning set forth in Section 3(y)(i).
(mmm) “ Purchase
Documents ” has the meaning set forth in Section
3(b).
(nnn) “ Purchase Price
” has the meaning set forth in Section 2(c).
(ooo) “ Real Estate
Sublease ” has the meaning set forth in Section
6(a)(v).
10
(ppp) “ Reconciled
Adjustment Amount ” means the dollar amount determined by
mutual agreement of the Parties and based upon the Buyer’s
review of and revisions to the Financial Statements one hundred
twenty (120) days after the Closing (which may be a positive or
negative number), equal to (A) plus (B) minus (C) plus (D), as
follows:
The sum of:
(A) all monthly fees (excluding set
up fees or any one time fees) paid to and received by the Seller
prior to the Settlement Date from its customers for base services
to be rendered by the Seller after the Settlement Date that have
not been subsequently refunded by the Buyer or Newco pursuant to
the terms of any agreement entered into between the Seller and such
customers,
plus
(B) the face amount of all Assumed
Liabilities as of the Closing,
less
the sum of:
(C) all unbilled and/or unpaid
accounts receivable for overage services provided by the Seller
prior to the Closing and received by the Seller after the Closing
for the month immediately prior to the Closing,
plus
(D) the amount of any prepaid
expenses.
(qqq) “ Scheduled Closing
Date ” has the meaning set forth in Section
2(f).
(rrr) “ Second Contingent
Amount ” has the meaning set forth in Section
2(e)(ii).
(sss) “ Second Contingent
Amount Period ” has the meaning set forth in Section
2(e)(ii).
(ttt) “ Second Contingent
Amount Threshold ” has the meaning set forth in Section
2(e)(ii).
(uuu) “ Securities Act
” means the Securities Act of 1933, as amended.
(vvv) “ Securities Exchange
Act ” means the Securities Exchange Act of 1934, as
amended.
(www) “ Security
Interest ” means any debt, claim, mortgage, pledge, lien,
encumbrance, assessment, charge restriction or other security
interest, other than (a) statutory liens of landlords, mechanics,
materialmens and similar liens imposed by Law,
11
(b) liens for taxes not yet due and payable, (c)
purchase money liens and liens securing rental payments under
capital lease arrangements and (d) other liens arising in the
Ordinary Course of Business and not incurred in connection with the
borrowing of money.
(xxx) “ Seller ”
has the meaning set forth in the preface above.
(yyy) “ Seller Employment
Agreements ” has the meaning set forth in Section
3(x).
(zzz) “ Seller
Stockholder ” has the meaning set forth in the preface
above.
(aaaa) “ Seller Stockholder
Agreement ” means the Seller Stockholder Agreement
between the Buyer and Seller Stockholder dated on even date
herewith in the form set forth as Exhibit A attached
hereto.
(bbbb) “ Seller Stockholder
Employment Agreement ” has the meaning set forth in
Section 6(a)(xii).
(cccc) “ Settlement
Date ” means 11:59 p.m. Mountain Standard Time on the day
prior to the Closing Date.
(dddd) “ Smartertools
” shall mean Smartertools, Inc., an Arizona
corporation.
(eeee) “ Smartertools
Sublease ” means the Real Estate Sublease between Newco
and Smartertools with respect to a portion of the property located
at 6135 N. 7th Street, Phoenix, Arizona.
(ffff) “ Software
Agreements ” means the Software Use Agreement and the
Software Distribution Agreement, each between Newco and
Smartertools substantially in the forms set forth as Exhibit
C attached hereto.
(gggg) “ Stock Incentive
Plan ” shall mean the Newtek Business Services, Inc. 2000
Stock Incentive and Deferred Compensation Plan, as
amended.
(hhhh) “ Subsidiary
” means any Person with respect to which a specified Party
(or a Subsidiary thereof) owns a majority of the common stock or
has the power to vote or direct the voting of sufficient securities
to elect a majority of the directors or, if the Person is not a
corporation, such equivalent role.
(iiii) “ Third Party
Claim ” has the meaning set forth in Section 5(d) of the
Seller Stockholder Agreement.
(jjjj) “ Transferred
Employees ” has the meaning set forth in Section
5(i).
12
2. Basic
Transaction.
(a) Purchase and Sale of
Assets. On and subject to the terms and conditions of this
Agreement, the Buyer agrees to purchase from the Seller and the
Seller agrees to sell, transfer, convey and deliver to the Buyer,
all of the Acquired Assets at the Closing for the consideration
specified below in this Section 2. It is agreed that the Buyer
shall not purchase from the Seller and the Seller shall not sell,
transfer, convey or delivery to the Buyer the Excluded
Assets.
(b) Assumption of
Liabilities. On and subject to the terms and conditions of this
Agreement, the Buyer agrees to assume, become responsible for, and
hold the Seller harmless on account of all of the Assumed
Liabilities at the Closing. The Buyer will not assume or have any
responsibility, however, with respect to any other obligation or
liability of the Seller not included within the definition of
Assumed Liabilities.
(c) Purchase Price . The
consideration for the Acquired Assets (the “Purchase
Price”) shall be equal to (i) $10,250,000, plus or
minus (ii) the Adjustment Amount, if any ($10,250,000 plus or
minus the Adjustment Amount, the “Base Price”), plus
or minus (iii) the Reconciled Adjustment Amount, if any,
plus (iv) the First Contingent Amount, if any; and
plus (v) the Second Contingent Amount, if any. The Base
Price shall be paid at Closing by the Buyer to the Seller and shall
be payable as follows: (i) $10,000,000 plus or minus the
Adjustment Amount shall be payable in cash, by wire transfer to an
account designated in writing by the Seller or by delivery of other
immediately available funds, and (ii) $250,000 shall be payable in
shares of Buyer Stock valued at a price per share equal to (A) the
price received by the Buyer in the sale of Buyer Stock referenced
in Section 6(a)(xvii) if Buyer shall have completed a sale of Buyer
Stock, or (B) the closing price of Buyer Stock as listed on the
Nasdaq National Market for the trading day immediately preceding
the financing transaction referenced in Section 6(a)(xvii) if Buyer
shall have completed a financing transaction other than a sale of
Buyer Stock. The Buyer Stock provided for in this Section 2(c)
shall be issued in the name of the Seller Stockholder, unless
otherwise instructed by the Seller in writing, and shall be
registered by the Buyer for resale pursuant to Section 2(k). If
Buyer fails to register the Buyer Stock that comprises part of the
Base Price for resale on or before the date one hundred twenty
(120) days after Closing as required under Section 2(k), the Seller
Stockholder shall have
13
a thirty-five (35) day option to tender to the
Buyer all, but not less than all, of the Buyer Stock that comprises
part of the Base Price, for $250,000 (the “Buyer Stock
Payment Amount”). The Buyer shall pay the Buyer Stock Payment
Amount to the Seller Stockholder in cash, by wire transfer to an
account designated in writing by the Seller Stockholder or delivery
of other immediately available funds, within five (5) business days
of receipt of the certificates representing the Buyer Stock that
comprises part of the Base Price from the Seller Stockholder. The
Seller Stockholder’s option under this Section 2(c) shall
expire and become null and void unless exercised in writing within
such thirty-five (35) day period. In addition, the Buyer agrees to
issue $250,000 of shares of Buyer Stock pursuant to its Stock
Incentive Plan to the Transferred Employees in conjunction with the
employment arrangements set forth in Section 5(k). In conjunction
with the Closing, the Buyer shall deposit $250,000 in cash into an
escrow account to be held in accordance with the terms and
conditions of the Escrow Agreement to secure the payment of the
Buyer Stock Payment Amount to the Seller Stockholder pursuant to
this Section 2(c), if any.
(d) Reconciled Adjustment
Amount. Once the Reconciled Adjustment Amount has been
determined, if the Reconciled Adjustment Amount is less than the
Adjustment Amount, the Purchase Price shall be increased by such
shortfall (the “Adjustment Amount Shortfall”). The
Buyer shall pay the Adjustment Amount Shortfall to the Seller in
cash, by wire transfer to an account designated in writing by the
Seller or by delivery of other immediately available funds, within
five (5) business days of the determination of the Reconciled
Adjustment Amount. Conversely, if the Reconciled Adjustment Amount
exceeds the Adjustment Amount, the Purchase Price shall be reduced
by such excess (the “Excess Adjustment Amount”). The
Seller shall pay the Excess Adjustment Amount to the Buyer in cash,
by wire transfer to an account designated in writing by the Buyer
or by delivery of other immediately available funds, within five
(5) business days of the determination of the Reconciled Adjustment
Amount.
(e) Contingent Amount
Payments.
(i) In the event that the Business
has achieved EBITDA of at least $2,800,000 at the conclusion of
twelve (12) months commencing on the first day of the first month
following the Closing Date (the “First Contingent Amount
Period”), the Buyer
14
shall allow Newco to pay to the Seller, or shall
cause the Escrow Agent to pay to the Seller, within thirty (30)
days thereafter or in accordance with Section 2(e)(iv): (A)
$750,000 in cash, by wire transfer to an account designated in
writing by the Seller or by delivery of other immediately available
funds, and (B) $750,000 in Buyer Stock valued at a price per share
equal to (1) the price received by the Buyer in the sale of Buyer
Stock referenced in Section 6(a)(xvii) if Buyer shall have
completed a sale of Buyer Stock, or (2) the closing price of Buyer
Stock as listed on the Nasdaq National Market for the trading day
immediately preceding the financing transaction referenced in
Section 6(a)(xvii) if Buyer shall have completed a financing
transaction other than a sale of Buyer Stock (collectively, the
“First Contingent Amount”), less any Indemnity
Reduction Amount. The Buyer Stock provided for in this Section
2(e)(i) shall be issued in the name of the Seller Stockholder,
unless otherwise instructed by the Seller in writing. Any Indemnity
Reduction Amount under this Section 2(e)(i) shall be deposited into
an escrow account, to the extent not already in an escrow account,
to be held until final determination of the Indemnity Reduction
Amount, at which point any such Indemnity Reduction Amount for
which the Buyer Group is entitled to indemnity shall be released to
Newco and any amount held in the escrow account for which the Buyer
Group is not entitled to indemnity shall be released to the Seller
substantially in accordance with the procedures established in the
Escrow Agreement. The Parties agree that the any Indemnity
Reduction Amount shall first be satisfied from the cash portion of
the First Contingent Amount. The Buyer shall deposit the Buyer
Stock portion of the First Contingent Amount into an escrow account
at Closing to be held in accordance with the terms and conditions
of the Escrow Agreement. In addition, if the Business has achieved
EBITDA of at least $2,050,000 (the “First Contingent Amount
Threshold”) at any time during the First Contingent Amount
Period, as demonstrated by the Buyer’s monthly financials as
mutually agreed upon by the Parties, the Buyer shall allow Newco to
deposit all or such part of the cash portion of the First
Contingent Amount equal to the EBITDA of the Business in excess of
the First Contingent Amount Threshold into an escrow account to be
held in accordance with the terms and conditions of the Escrow
Agreement; provided, however, that in the event that at the
conclusion of the First Contingent Amount Period, the Business
fails to have achieved EBITDA of at least $2,800,000 during such
period, all amounts deposited into an escrow account pursuant to
this Section 2(e)(i) shall be returned to Newco, together with
interest earned thereon, if any.
15
(ii) In the event that the Business
has achieved EBITDA of at least $3,200,000 at the conclusion of
twenty-four (24) months commencing on the first day of the first
month following the Closing Date (the “Second Contingent
Amount Period”), the Buyer shall allow Newco to pay to the
Seller, or shall cause the Escrow Agent to pay to the Seller,
within thirty (30) days thereafter or in accordance with Section
2(e)(iv): (A) $500,000 in cash, by wire transfer to an account
designated in writing by Seller Stockholder or delivery of other
immediately available funds, and (B) $1,000,000 in Buyer Stock
valued at a price per share equal to (1) the price received by the
Buyer in the sale of Buyer Stock referenced in Section 6(a)(xvii)
if Buyer shall have completed a sale of Buyer Stock, or (2) the
closing price of Buyer Stock as listed on the Nasdaq National
Market for the trading day immediately preceding the financing
transaction referenced in Section 6(a)(xvii) if Buyer shall have
completed a financing transaction other than a sale of Buyer Stock
(collectively, the “Second Contingent Amount”),
less any Indemnity Reduction Amount. The Buyer Stock
provided for in this Section 2(e)(ii) shall be issued in the name
of the Seller Stockholder, unless otherwise instructed by the
Seller in writing. Any Indemnity Reduction Amount under this
Section 2(e)(ii) shall be deposited into an escrow account, to the
extent not already in an escrow account, to be held until final
determination of the Indemnity Reduction Amount, at which point any
such Indemnity Reduction Amount for which the Buyer Group is
entitled to indemnity shall be released to Newco and any amount
held in the escrow account for which the Buyer Group is not
entitled to indemnity shall be released to the Seller substantially
in accordance with the procedures established in the Escrow
Agreement. The Parties agree that any Indemnity Reduction Amount
shall first be satisfied from the cash portion of the Second
Contingent Amount. The Buyer shall deposit the Buyer Stock portion
of the Second Contingent Amount into an escrow account at Closing
to be held in accordance with the terms and conditions of the
Escrow Agreement. In addition, if the Business has achieved EBITDA
of at least $2,450,000 (the “Second Contingent Amount
Threshold”) at any time during the Second Contingent Amount
Period, as demonstrated by the Buyer’s monthly financials as
mutually agreed upon by the Parties, the Buyer shall allow Newco to
deposit all or such
16
part of the cash portion of the Second
Contingent Amount equal to the EBITDA of the Business in excess of
the Second Contingent Amount Threshold into an escrow account to be
held in accordance with the terms and conditions of the Escrow
Agreement; provided, however, that in the event that at the
conclusion of the Second Contingent Amount Period, the Business
fails to have achieved EBITDA of at least $3,200,000 during such
period, all amounts deposited into an escrow account pursuant to
this Section 2(e)(ii) shall be returned to Newco, together with
interest earned thereon, if any.
(iii) Notwithstanding the foregoing,
if a Change in Control shall occur or the Seller
Stockholder’s employment with the Buyer is terminated for any
reason (a) at any time prior to the conclusion of the First
Contingent Amount Period, the First Contingent Amount and the
Second Contingent Amount shall, no later than thirty (30) days
after such Change in Control or termination of employment, be paid
to the Seller and the Seller Stockholder as provided in Sections
2(e)(i) and 2(e)(ii); and (b) at any time prior to the conclusion
of the Second Contingent Amount Period, the Second Contingent
Amount shall, no later than thirty (30) days after such Change in
Control or termination of employment, be paid to the Seller and the
Seller Stockholder as provide in Section 2(e)(ii).
(iv) In connection with determining
the EBITDA of the Business, Newco will permit the Seller
Stockholder to have full access at all reasonable times and in a
manner so as to not interfere with the normal business operations
of Newco, to the books and records of Newco and to Newco’s
accountant’s work papers, to the extent such work papers
contain information relevant to the EBITDA of the Business, to
verify the computation of EBITDA. In the event that the Seller
Stockholder disagrees with the calculation of the EBITDA of the
Business for either the First Contingent Amount Period or the
Second Contingent Amount Period, the Seller Stockholder shall have
the right, at his sole cost and expense, to conduct an independent
audit of Newco’s books and records for such period. Any such
audit performed under this Section 2(e)(iv) shall be completed
within thirty (30) days after the First Contingent Amount Period or
Second Amount Period, as applicable. In the event that the EBITDA
was calculated incorrectly and the Seller should have been entitled
to the payments provided under Section 2(e)(i) or (2)(e)(ii), the
Buyer shall allow Newco to pay to the Seller, or shall cause the
Escrow Agent to pay to the Seller, such payments within thirty (30)
days after the completion of the applicable
17
audit. Any information provided to the Seller
Stockholder under this Section 2(e)(iv) shall be deemed to be
confidential and the Seller Stockholder shall treat and hold any
information he receives from the Buyer or Newco in the course of
the audits contemplated by this Section 2(e)(iv) strictly
confidential, will not use such information except in connection
with this Agreement and, upon completion of any audit, will return
to Newco all tangible embodiments (and copies thereof) of the
information which are in his possession.
(f) The Closing. The closing
of the transactions contemplated by this Agreement (the
“Closing”) shall take place at the offices of Nearhood
Law Offices in Scottsdale, Arizona, commencing at 9:00 a.m.
Mountain Standard Time on May 17, 2004 (the “Scheduled
Closing Date”). The Buyer shall have two options to extend
the Scheduled Closing Date for a period of one (1) month each by
delivering written notice to Seller not later than 5:00 p.m.
Mountain Standard Time on the day prior to the then scheduled
Closing Date (the later of the Scheduled Closing Date, or if such
option(s) are exercised, June 17, 2004 or July 19, 2004, the
“Closing Date). If Buyer exercises such option(s) to extend
the Scheduled Closing Date, and as a condition to such
extension(s), Buyer shall at each time Buyer delivers such notice,
pay to Seller a nonrefundable earnest money deposit in the amount
of $100,000 (each, a “Earnest Money Deposit”). The
Earnest Money Deposit(s) shall be applied as a credit against the
Base Price payable by Buyer at the Closing; and if Buyer fails to
close timely as provided herein, the Earnest Money Deposit(s) shall
be forfeited to Seller as liquidated damages (and not a penalty) to
compensate Seller for holding the Acquired Assets off the market
pending the sale to Buyer contemplated under this Agreement. If
Buyer fails to exercise timely the options to extend the Scheduled
Closing Date as provided in this Section 2(f), such options shall
be deemed terminated, null and void, and of no further force or
effect.
(g) Deliveries at the
Closing. At the Closing, (i) the Seller will deliver to the
Buyer the various certificates, instruments and documents referred
to in Section 6(a); (ii) the Buyer will deliver to the Seller the
various certificates, instruments and documents referred to in
Section 6(b); (iii) the Seller will execute, acknowledge (if
appropriate) and deliver to the Buyer (and with respect to the
Smartertools Sublease and the Software Agreements will deliver on
behalf of Smartertools) (A) the Escrow Agreement, (B) the Software
Agreements executed by Smartertools, (C) the Real Estate Sublease,
(D) the
18
Smartertools Sublease, and (E) such other
instruments of sale, transfer, conveyance and assignment as the
Buyer and its counsel may reasonably request that are necessary,
appropriate or desirable for the consummation of the transactions
contemplated by this Agreement; (iv) the Buyer will execute,
acknowledge (if appropriate) and deliver to the Seller (and with
respect to the Smartertools Sublease will deliver on behalf of
Newco) (A) the Escrow Agreement, (B) the Software Agreements
executed by Smartertools, (C) the Real Estate Sublease, (D) the
Smartertools Sublease, and (E) such other instruments of assumption
as the Seller and its counsel may reasonably request that are
necessary, appropriate or desirable for the consummation of the
transactions contemplated by this Agreement; and (v) the Buyer will
deliver to the Seller the Base Price specified in Section
2(c).
(h) Allocation. The Parties
agree to allocate the Purchase Price (and all other capitalizable
costs) among the Acquired Assets for all purposes (including
financial accounting and tax purposes) in accordance with the
Schedule 2(h) .
(i) Buyer Acquisition
Subsidiary. Buyer intends to organize a new corporation for
purposes of this transaction (“Newco”) and to assign to
it all of Buyer’s rights under this Agreement. In such event,
Newco shall expressly assume the assignment of all rights and
responsibilities hereunder; provided, however, Buyer shall at all
times remain jointly and severally liable with Newco for the full
and timely performance of all obligations hereunder.
(j) Buyer Stock . Each
certificate representing Buyer Stock that comprises part of the
Base Price will be imprinted with a legend substantially in the
following form until such time as Buyer has obtained the
effectiveness of a registration statement to cover the sale of such
Buyer Stock:
“The shares of stock
represented by this certificate have not been registered under the
Securities Act of 1933, as amended. The transfer of the shares is
subject to certain restrictions set forth in the Securities Act of
1933. Each holder desiring to transfer such shares first must
furnish the company with (i) a written opinion reasonably
satisfactory to the company in form and substance from counsel
reasonably satisfactory to the company, which may be from counsel
to the company, to the effect that the holder may
transfer
19
the shares as desired without
registration under the Securities Act and (ii) a written
undertaking executed by the desired transferee reasonably
satisfactory to the company in form and substance agreeing to be
bound by the restrictions on transfer contained
herein.”
(k) Registration of Buyer
Stock . Buyer agrees to use its best efforts to cause a
registration statement covering the resale of the Buyer Stock
issued to Seller Stockholder that comprises part of the Base Price
to be filed and to be declared effective at the earliest
practicable time, but in no event later than one hundred twenty
(120) days after the Closing Date. The Buyer shall notify the
Seller within five (5) days of the effective date of any
registration statement filed pursuant to this Section 5(k), to the
extent such registration statement is declared
effective.
3. Representations and Warranties
of the Seller. The Seller represents and warrants to the Buyer
that the statements contained in this Section 3 are correct and
complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though
the Closing Date were substituted for the date of this Agreement
throughout this Section 3), except as set forth in the disclosure
schedules accompanying this Agreement and initialed by the Parties
(the “Disclosure Schedules”).
(a) Organization of the
Seller. The Seller is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of
the State of Arizona and has all the requisite power and authority
to own, lease and operate its properties and to carry on the
Business as now being conducted. Seller is qualified to do business
in the jurisdictions set forth in Schedule 3(a) , which
constitute each jurisdiction other than Arizona, if any, in which
it is conducting business or the operation, ownership or leasing of
its properties makes such qualification necessary.
(b) Authorization of
Transaction. The Seller has full power and authority (including
full corporate power and authority) to execute and deliver this
Agreement and the other agreements, documents, certificates and
instruments required to be delivered by the Seller pursuant to this
Agreement (collectively, but excluding this Agreement the
“Purchase Documents”) and to perform its obligations
hereunder and the